Samsung remains the world’s leading smartphone maker, but growth is slowing for the Korean industrial giant as its mobile unit finds itself pressured by Apple on the high end and by Chinese rivals on the lower end of the market. Sales at the company’s mobile division were down roughly 9% from the previous quarter. Operating profits were off roughly 18% from the previous quarter, and were basically flat versus the year-ago quarter.
For the overall company, which makes everything from vacuum cleaners to military tanks, sales were up less than 1% versus year ago quarter. One bright spot was Samsung’s chip business, where sales were up 9% versus the year-ago quarter and operating profit was up 40%. Samsung designs and manufactures chips for its own mobile devices and it manufactures chips designed by other device makers, including Apple. In a call with analysts, the company alluded to the fact that Apple’s success has boosted sales at Samsung’s chip unit.
Samsung’s mobile division now represents more than half its revenue, so the downturn here is a troubling sign for the company. It dominates the Android market, but its Galaxy smartphones face stiff competition from the iPhone and to a lesser extent from Nokia’s Lumia line of Windows phones. (Nokia’s handset business, which is being sold to Microsoft, shipped just 8.2 million smartphones in the most recent quarter.)
In the long term, competition at the low end of the market may be the biggest problem for Samsung. Chinese manufacturers are sourcing extremely low-cost components from smaller chipmakers. Combined with low labor costs, these chips are enabling Android phones to come to market for prices as low as $40, off-contract.
“The level of competency in the product is extremely high,” said Andrew Rassweiler, senior director for cost benchmarking services at IHS Technology. “You can argue perhaps about the quality of the device, but then when you put it on the desk alongside higher-end phones, it’s pretty hard to argue. The results are tangible.”
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