Samsung Profit Drops 49 Percent in Q3 as Competition Rises

Samsung reported third-quarter sales of $45.1 billion, down 19 percent from $56 billion during the same period last year.

Samsung earnings

Samsung has suffered another quarter of reduced net profits, which fell to $4 billion in the third quarter ended Sept. 30 from $7.8 billion in the same quarter last year. In this interval, the company's sales plummeted 19 percent to $45.1 billion from $56 billion.

Samsung announced its third-quarter earnings in a conference call with financial analysts on Oct. 30, blaming the disappointing results on a "weak smartphone product mix" that led to decreased sales as well as price reductions on older devices.

In the fourth quarter, the company said it expects smartphone and tablet demand to increase, while competition in the bustling marketplace is expected to intensify and price wars will continue with more year-end promotions.

The company's lower net profit of $4 billion was also a 32 percent drop from $5.9 billion in the second quarter of 2014. Total revenue in the latest quarter fell 9.2 percent from $49.7 billion in the second quarter.

Company officials responded to the lower figures and promised changes going forward, according to a report by the Associated Press. "In a rare acknowledgement of a misstep, the company's head of investor relations [said during] an earnings conference call that Samsung had lagged behind changing market conditions," AP reported. "The company's response 'was not quick enough,' said the executive, Robert Yi."

Samsung plans to make big changes in its smartphone strategy in 2015 and will "seek more 'efficiency,' implying that the number of new handset models might be reduced, AP reported. "That will allow the company to better focus on each product and to purchase components at cheaper prices to save costs."

Kim Hyun-joon, a senior vice president in Samsung's mobile unit, said the company will "focus on obtaining a sustainable double-digit percentage margin" in mobile phones, according to an article in The Wall Street Journal. "Company executives said they would try harder to differentiate Samsung's handsets from those of competitors next year by adopting more flexible displays and metal frames. But analysts expect the introduction of next-generation devices like foldable-screen phones in sizable volumes to be difficult due to technological hurdles."

In the mobile category alone, Samsung saw third-quarter sales revenue of $22.3 billion for its devices. That was down 34 percent from the $33.9 billion during the same period last year.

The diverse company's third-quarter semiconductor revenue was up slightly from the second quarter, but sales of consumer electronics, such as kitchen appliances, televisions and DVD players, have been down since 2013.

Market leader Samsung certainly hasn't been immune to the stresses of the highly competitive smartphone market, according to a recent eWEEK report.

Despite its recent sales troubles, the Korean company continues to lead the global industry in both mobile phone and smartphone shipments, with 78.1 million devices and a 23.8 percent market share for the third quarter, compared with 39.3 million devices and a 12 percent market share by its next closest competitor, Apple, according to new figures released by IDC.

In the second quarter of 2014, Samsung blamed its weak earnings on a strong Korean won (which is at a six-year high) and increased competition, particularly "intensified price competition" from other phone makers in Asia.

Samsung has historically dominated the phone market in recent years by offering a variety of devices at a wide range of prices, and by meeting consumers' interest in large displays, while Apple continued to limit the size of its iPhones. That is likely changing since Apple's larger new iPhone 6 Plus and iPhone 6 smartphones hit the market in September.

In addition, Samsung's sales are also being hit in the lower end of the market, particularly in China, the world's largest smartphone market. There, Lenovo, Xiaomi, Huawei and other local brands have strong followings—and the support of the Chinese government, which owns the wireless carriers.