Samsung Electronics' strategy to try to capture market share with lower-cost smartphones appears to be cutting into profits as competition builds up from Chinese players.
The South Korean company reported Thursday in a pre-earnings guidance that its operating profit in the fourth quarter of 2014 is likely to have fallen by about 37 percent to the range of 5 trillion won (US$4.55 billion) and 5.4 trillion won, from 8.3 trillion won a year ago. Sales are expected to be between 51 and 53 trillion won, compared with 59.28 trillion in the same quarter a year earlier.
Samsung has launched a number of smartphones targeted at mid-range and low-end markets. It launched the Galaxy A3 and A5 in China in November and the Galaxy E7 and E5 in India this month, in the $300-$400 price range.
But as the smartphone market is saturating, analysts are doubtful whether addressing the low-cost phone segment can help the company's profits bounce back.
"Samsung made profit from the high-end smartphones, their mid to low segment lines may be popular in China and India, but when it comes adding to its margin and profit, it's a different story," said Lee Seung-woo, analyst at IBK Securities in Seoul. "As smartphone market is saturating, whether [Samsung] turns its focus to TV or IoT market, it will get pressured from the Chinese companies."
In the third quarter of 2014, three of the top five smartphone vendors worldwide were Chinese, according to research firm Gartner.
Samsung did not disclose on Thursday its sales of smartphones in the fourth quarter. In the third quarter, the company's share of the smartphone market dropped to over 24 percent from about 32 percent in the same quarter in the previous year, Gartner said. Samsung's smartphone shipments also fell to 73 million from 80 million in the third quarter of 2013.
The company's Galaxy Note Edge, a high-end model with a curved screen at the edge, that came out in the fourth quarter, may help the company's earnings from the mobile division to slightly improve, according to a research note by Kiwoom Securities.
At CES, Samsung introduced smart TVs that run on Tizen, an open source operating system the company has backed, to connect to other Samsung devices. The move gives the company an alternative to Google's Android, which runs on most of its devices. The company has delayed the release of Tizen-run smartphones in India and Russia.
Sign up for CIO Asia eNewsletters.