Samsung apparently underestimated demand for its new Galaxy S6 Edge smartphone, making more of the basic Galaxy S6 devices that are not as popular.
Samsung's estimated second-quarter 2015 figures show expected drops in revenue and profit as the huge technology company continues to be plagued by disappointing financial results.
In estimates released July 6, Samsung said it expects to report operating profits of $6.1 billion for the quarter ended June 30, which is a 4 percent drop from the same period a year ago, as well as revenue of $42.3 billion, 8.4 percent lower than the total one year ago.
The numbers are particularly disappointing at this time because in April Samsung released its new flagship smartphones, the Galaxy S6 and Galaxy S6 Edge, to battle back against Apple's hugely popular iPhone 6 and iPhone 6 Plus models, which came out in September 2014.
Part of the problem, according to a July 6 report by The Wall Street Journal
, is that Samsung apparently underestimated
what turned out to be higher demand for the Galaxy S6 Edge phone, with its screen that wraps around both sides of the smartphone, and planned for larger supplies of the standard S6 model over the S6 Edge, the news story reported.
"According to a person familiar with the matter, the company initially expected to sell four Galaxy S6 smartphones for each Galaxy S6 Edge that it sold, and set up its production facilities accordingly," The Journal
reported. "Instead, demand was much likely closer to even for the two devices, the person said. The company ended up having more white S6 phones than it could sell and not enough S6 Edge handsets, which hurt sales, revenue and profit figures.
Samsung is working now to build as many S6 Edge phones as it needs, with a source telling The Journal
that this could help lift the company's financial results in the third or fourth quarters of the year. Whether that will be adequate or too late is the next issue that the company will have to grapple with as it continues to work to bolster sales and profits.
Richard Windsor, an analyst with Edison Investment Research, told eWEEK
in an emailed statement that it was logical that Samsung expected to sell more standard S6 phones than S6 Edge devices because earlier Edge devices had not sold as well. The disappointing results were due in part to that miscalculation, he wrote.
"This is a common occurrence in the handset market where demand is notoriously difficult to predict and hence this is no fault of Samsung's management," wrote Windsor. "The net result is that overall shipments of the S6 have not been as good as hoped causing the revenue miss reported."
On the other hand, wrote Windsor, Samsung's margins have held up well and he expects the company's handset business will be able to maintain or even improve on its 10.6 percent margins seen in the first quarter of 2015. "As long as market share and margins can be held stable, the way will be clear for [the company's] Device Solutions—memory, panels and LSI [division] to generate profit growth for the group going forward."
Still, the recovery at Samsung is likely going to take a while, wrote Windsor. "However, this does not mean that good times are here again as Device Solutions is not about to explode into rapid growth. Hence, we think that low single-digit earnings growth is likely for at least the next couple of years."
Samsung will release its final figures for the second quarter in late July. The estimates show the company heading for its seventh straight quarterly profit decline.
Samsung has been hit hard in recent years by lower sales of its mobile phones, which have been losing ground to cheaper phones from Chinese handset makers, and from stiffer competition from Apple and its latest iPhone 6 smartphones and from other competitors. Much of the sales slump likely was due to consumers who were waiting to see the then-new iPhones and Samsung's own replacement for its earlier flagship Galaxy S5 phone.