Samsung Blames Sinking Smartphone Sales On Supply Snafu - InformationWeek

InformationWeek is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

IoT
IoT
Mobile // Mobile Business
News
7/7/2015
12:01 PM
50%
50%

Samsung Blames Sinking Smartphone Sales On Supply Snafu

Samsung predicted another profit decline as sales of the Galaxy S6 aren't quite what the company expected.

Millennials: Why Customer Service Will Never Be The Same
Millennials: Why Customer Service Will Never Be The Same
(Click image for larger view and slideshow.)

Samsung today warned that its second-quarter profit will be lower than initially estimated. It is largely blaming the drop on sluggish performance of its new flagship smartphones. Worse, Samsung miscalculated supply levels for the phones dramatically.

Samsung said it expects to record a profit of approximately $6.1 billion for the three months ending June 30. That represents a drop of 4% year-over-year. Moreover, revenue was down 8.4% compared to the year-ago period. With its semiconductor business firing on all cylinders, Samsung's mobile device business is shouldering the majority of the blame

So what went wrong?

(Image: Petar Chernaev/iStockphoto)

(Image: Petar Chernaev/iStockphoto)

To start, Samsung stripped out some popular features to make the Galaxy S6 and S6 Edge more like the iPhone. For example, in order to achieve the thin profile and classy design, Samsung was forced to seal up the battery. This became an achilles heel for the phones.

More importantly, Samsung screwed up its supply estimates for the two handsets. Initially, Samsung believed consumers would snap up one S6 Edge for every four S6 models sold. In reality, consumers were buying the phones at approximately even levels. The result was a short supply of the S6 Edge and a stockpile of the S6.

[Read about Smartphones to Watch in 2015.]

Samsung was quick to pledge more supply of the S6 Edge, but the company was forced to reconfigure its plants to do so. Changing production lines takes time and money. It didn't help that the S6 Edge's curved screen is difficult and costly to manufacture.

Samsung also messed up orders for the different colors. The device was announced in five hues: black, white, green, blue, and gold. The company made far too many white models, which haven't been selling. In the US, only the black, white, and gold models are available. The attractive blue and green colors are being reserved for other markets.

The result? A mess on Samsung's balance sheet.

This will mark the seventh consecutive decline in profits for Samsung's mobile division. Two years ago, its smartphone-making arm could do no wrong. Samsung's fortunes have changed quickly. Samsung no longer discloses its sales of smartphones, but estimates place them between 71 and 76 million for the quarter. The S6 and S6 Edge account for about 20% of those estimates. If there's any good news here, it's that Samsung is still in the black, and the second quarter's profit decline isn't nearly as disastrous as the first quarter's 30% profit plunge.

Surely there is some hand-wringing and head-scratching going on over at Samsung HQ. Interest in Samsung's flagship handsets peaked with the 2013 Galaxy S4. Sales of the 2014 Galaxy S5 were way off. So far the Galaxy S6 isn't off to a great start. Apple's iPhone 6 and iPhone 6 Plus are a one-two punch that appears to have Samsung against the ropes. Meanwhile, Samsung has all but abandoned the low end of the market, ceded to China-based competitors.

Samsung's next major handset will be the Galaxy Note 5, which is expected to arrive in early September at the IFA trade show in Berlin. Will it be able to turn Samsung's fortunes around?

Eric is a freelance writer for InformationWeek specializing in mobile technologies. View Full Bio

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.
Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
progman2000
50%
50%
progman2000,
User Rank: Ninja
7/17/2015 | 12:19:54 PM
Re: Anyone believes Shamstung?
Seriously? Who exactly is the fan boy here? How is Android a "hot mess"? I have never had issues with Android, never locks up, never have to reset it, nadda. And I routine swap batteries in favor of a high capacity battery when I'm traveling and know I'll be using GPS and be away from a charger. Couldn't be more convenient - and yes that includes removable media also.
ANON1248720440898
50%
50%
ANON1248720440898,
User Rank: Strategist
7/8/2015 | 9:10:26 AM
Anyone believes Shamstung?
Seriously, how is this even possible?   Could it be that, after reniging on all the BS about removable batteries and SD card slots (which Apple rightly saw as design compromises) even some fAndroids are starting to see though their PR statements. 

The reason Samsung isn't selling is that Android is a hot mess, no real sign of changing anytime soon, designed expressly to collect data from you, was only just a bold faced rip off of iOS to begin with, and the iPhone 6 and 6+ removed any and all legitimate reasons for prefering a clone of iPhone rather than a real one that actually runs iPhone software.   I think so.  
melgross
100%
0%
melgross,
User Rank: Ninja
7/7/2015 | 5:52:44 PM
More excuses
Samsung is just full of excuses. Considering that they don't give out quarterly sales numbers for smartphones or tablets, or even shipping numbers (because they were caught in an apparent lie by Lenovo, end of 2010), we have no way of knowing whether what Samsung is saying is true, as far as their excuses are concerned. The Edge is selling better than expected, or the 6 is selling worse than expected? We don't know. Considering the lack of truthfulness Samsung is traditionally credited with, as well as their general lawlessness as a corporation over the years, I don't really believe anything they say. Are these good phones? Well, the 6 is, and the Edge has had plenty of criticism. But it's the lack of reason why android buyers buy phones that's a major reason why sales aren't where Samsung wants them to be. But the lack of a removable battery and a memory card slot doesn't explain the drop in sales last year of the S5 from S4 levels. The iPhone 6 and 6+ explains that. Perhaps the S6 models are still suffering from that competition, as well as the lack of those features. Edge supplies are just a smokescreen.
melgross
100%
0%
melgross,
User Rank: Ninja
7/7/2015 | 5:45:12 PM
Re: Hmmm, still toting around a Note 2...
Xiaomi is given too much credit. If you go to the financial sites where discussion of China's economic policy is a major area, you'll see all of the problems they're having. Those problems are also discussed in articles in the major financial papers as well. A problem is that the government is interested in growth to the point that good practices are ignored. Major banks, which are all controlled by the government, give out loans at below market rates. Many of those loans aren't expected to be paid back. That's policy. A number of companies are the beneficiaries of that policy. Xiaomi is one of those companies. People need to think about why they can sell a phone at little more than half the price of an equivalent phone from a non Chinese company, even though both are manufactured in China. Profit? I don't think so. If that financial advantage was taken away, they would operate at a good loss.
progman2000
0%
100%
progman2000,
User Rank: Ninja
7/7/2015 | 5:23:04 PM
Re: Hmmm, still toting around a Note 2...
I didn't realize it was that bad. They certainly don't discount the damn phones as deeply as they used to, or I would have upgraded to a newer Samsung phone by now...
Thomas Claburn
100%
0%
Thomas Claburn,
User Rank: Author
7/7/2015 | 4:47:17 PM
Re: Hmmm, still toting around a Note 2...
Android phones amount to about 75% of smartphone sales yet how many Android handset makers are profitable? Xiaomi? 
progman2000
0%
100%
progman2000,
User Rank: Ninja
7/7/2015 | 3:13:46 PM
Hmmm, still toting around a Note 2...
Maybe they'll start slashing prices on their inventory and I will be able to get a steal on one of these phones. I'm hesitant to give up the Note 2 though, it does have the cherished replaceable battery...
Slideshows
Top-Paying U.S. Cities for Data Scientists and Data Analysts
Cynthia Harvey, Freelance Journalist, InformationWeek,  11/5/2019
Slideshows
10 Strategic Technology Trends for 2020
Jessica Davis, Senior Editor, Enterprise Apps,  11/1/2019
Commentary
Study Proposes 5 Primary Traits of Innovation Leaders
Joao-Pierre S. Ruth, Senior Writer,  11/8/2019
White Papers
Register for InformationWeek Newsletters
Video
Current Issue
Getting Started With Emerging Technologies
Looking to help your enterprise IT team ease the stress of putting new/emerging technologies such as AI, machine learning and IoT to work for their organizations? There are a few ways to get off on the right foot. In this report we share some expert advice on how to approach some of these seemingly daunting tech challenges.
Slideshows
Flash Poll