Samsung Electronics Co Ltd recorded its slowest quarterly profit growth in over a year on Tuesday as its Galaxy S9 device failed to reach sales targets and competition heated up, throwing doubts on its leadership in the smartphone market.
Samsung Electronics, which is an Apple Inc components supplier and smartphone rival, stated that operating profit from the mobile business recorded its steepest rate of decline since the first quarter of last year, with cheaper Chinese-made handsets putting pressure on margins.
The South Korean tech titan gave investors little reason to be bullish for a quick turnaround in the mobile business, flagging tighter competition during the second half amid concerns that its premium phones did not have the innovation to drive sales growth.
“Samsung was already lost to China in price competition and is getting threatened by Chinese models in designs and hardware strength,” stated Park Jung-hoon, who is a fund manager at HDC Asset Management that owns Samsung shares.
“It is not an easy game for Samsung unless it really meets consumers’ needs for new smartphones.”
High marketing expenses as well as the lackluster performance of the flagship S9 smartphone, which did not meet its sales target, dragged down its mobile performance, Samsung stated.
Samsung is currently counting on foldable phones to become the next big thing. The company’s screen manufacturing unit said last week that its unbreakable, bendable screen had passed US safety testing, a key step towards bringing foldable phones to market.
“We are hoping that such adoption will serve as a catalyst in the stagnated mobile market,” said Kyeong Tae Lee, who is the vice president of Samsung’s mobile business.
In the near term, Samsung stated that competition would intensify in the second half as newer smartphone models were released, compelling it to introduce a new Galaxy Note earlier than usual. Samsung is set to launch a new Note next month.
The mobile business booked a 34 percent plunge in operating profit 2.7 trillion won ($2.4 billion) during the second quarter, its largest decline since the Galaxy S7 was Samsung’s flagship model earlier last year.
It is still awaited whether Samsung’s difficulties in the mobile business, which accounts for about 40 percent of its revenue, are due to its own failings or reflect the industry slowdown more broadly.
Apple is scheduled to report a rise in revenue and profit for the third quarter on Tuesday, supported by resilient sales of its iPhones.
China’s Huawei Technologies, which the is the world’s third largest smartphone maker, earlier on Tuesday recorded the slowest growth in its first-half sales since 2013.
Meanwhile, the world’s biggest chip and smartphone maker stated that operating profit increased 5.7 percent to 14.9 trillion won, or $13.3 billion, in the second quarter, slightly ahead of its 14.8 trillion won prediction.
Revenue for the April-June period dropped 4 percent to 58.5 trillion won.
Samsung shares decreased 0.3 percent, compared with the flat broader market.
As the mobile business struggles, the chip business stayed as Samsung’s top earner during the second quarter as sales to the cloud-computing and cryptocurrency industries buoyed RAM chip prices even as NAND flash memory prices dropped.
The chip unit recorded 11.6 trillion won operating profit during the second quarter, higher 45 percent from a year ago and nearly 80 percent of its total operating income.
Samsung said that the demand for DRAM chips, which is its main memory product, would stay strong in the second half thanks to the growth of the server data centers that are used for cloud computing.
This outlook resonated with South Korean rival SK Hynix Inc’s predicted last week of robust DRAM chip sales for the remainder of the year, comments likely to ease investor worries that an unprecedented two-year boom in the chip business is about to meet its quick end.