Samsung remains the juggernaut of the smartphone market, but the cost of staying on top weighed on profits during the company’s second quarter. The company that sells more mobile phones than any other said the cost of new product launches led to a 3% year-on-year decline in operating profit for its handset group during Q2. Samsung said that along with research and development costs, product marketing costs and investments in retail channels led to the profit decline.
Smartphone demand increased slightly during the quarter for Samsung; the company said the increase was in the low single digits. Tablet demand decreased in developed markets, but increased in emerging markets.
Overall Samsung’s mobile unit managed a healthy 9% year-on-year increase in sales. Revenue for the second quarter was 34.58 trillion won, or $31 billion. Operating profit was 6.28 trillion won ($5.6 billion), versus 6.51 trillion won ($5.8 billion) during the second quarter of last year.
Samsung’s flagship Galaxy S4 smartphone benefitted from an aggressive advertising campaign during the second quarter, but it is still not clear whether consumers are purchasing the volumes Samsung expected. The company’s second quarter earnings press release says that its smartphone sales growth was led by “solid S4 shipments” but does not mention end sales to customers.
“When [the S4] first came out, we saw reaction on the consumer side very anemic,” said analyst John Feland of Argus Insights, which tracks consumer reviews of smartphones on social media sites. “When Samsung was being very bullish about their Galaxy S4 sales they were talking about sell-in as opposed to sell-through. They basically stuffed the channel a bit. And now we’re starting to see some of that inventory come through as more and more people get their hands on it. But what’s interesting is that we’re finding that the pieces that Samsung led with as the reasons to buy the S4 – the eye tracking, the air gestures, things like that – comprise less than 5% of any of the conversations of what people are talking about relative to the phone. So at some level they led with the wrong features to drive adoption.”
Even if Samsung’s enormous advertising budget for the Samsung S4 may have missed the mark, sales may be improving during the current quarter. Verizon Wireless did not even get the S4 until late in the second quarter. But now as Motorola’s new Droid devices move to center stage, the nation’s largest carrier is already discounting some versions of the S4.
Follow me on Twitter.
