Looks like smartphone heavyweights aren’t having those staggering earnings after all. While Apple recently posted its fourth quarter results missing sales estimates, Samsung too fell wide short of the expectations, in clear signs of the start of a decline in this space — unless of course you bring in an altogether different device.
In fact, this time even the semiconductor business of Samsung, which usually performs well, showed signs of slowing down. That comes when a Gartner report recently pegged the Korean giant among one of the biggest semiconductor consumers in 2015.
Samsung posted a net profit of $2.7 billion during the October-December quarter which was 40% less than the same period last year. The revenues were almost the same as was predicted by Samsung and stood at 53.32 trillion won ($50.8 billion). However, operating profits for the quarter witnessed a 16% increase year-over-year and stood at $5.05 billion.
In the year 2015, Samsung posted a profit of 19.1 trillion won ($15.8 billion) which was 19% down from the previous year and the lowest level in four years. Moreover, this makes it the second year in a row for Samsung witnessing a decline in annual net income after the company’s earnings peaked at 30.5 trillion won in 2013.
As far as the individual business segments are concerned, the mobile division earned a profit of 2.23 trillion won which was a 7.3 percent decline from the previous quarter.
The semiconductor business has been the strength of Samsung as it is the largest manufacturer of chips. However, this quarter saw that segment also slowing down for the South Korean company.
Although semiconductor division posted an operating profit of 2.8 trillion won compared to 2.7 trillion won last year, but this number was 25% less than the previous quarter.
The reasons for the decline in mobile business as well as semiconductor business are attributed to the slowdown in economy which has led to weak currency exchange rates(something which affected Apple as well); high competition from the plethora of budget smartphones; slump in the global PC demand affecting chip business; and oversupply of memory chips that pushed down prices.
Samsung has predicted a similar performance in the first half of 2016 as well owing to the weak IT demand and difficult business environment.
Expecting challenges in 2016 to maintain earnings due to a difficult business environment and slowing IT demand, the company will strive to improve performance in the second half, by capitalizing on strong seasonal demand for set business products and enhancing the product mix in components business.
said the company in a statement.
After the disclosure of financial results, Samsung’s stock price declined by 2 percent despite the assurance of Samsung to the investors by giving them a glimpse into its future plans in different revenue areas.
The company pointed towards its plans to transparent, mirror, automotive and flexible displays as future display business areas. It also reiterated its commitment to focus on IoT devices in the home and health areas.
In order to maintain the investor faith, Samsung has also promised to return 30% to 50% of its annual free cash flow to investors through buybacks and higher dividend payouts.