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7/8/2014
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Samsung Smartphone Juggernaut Shows Signs Of Weakness

Slower-than-expected smartphone and tablet sales lead Samsung to warn investors about profit drop.

10 Ways Google Must Improve Android
10 Ways Google Must Improve Android
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Samsung said on Tuesday that soft sales of its smartphones and tablets played a role in what will be a weak second quarter for the company. Samsung warned that the slowing market for high-end devices affected multiple aspects of its business, and both revenues and profits will be lower than forecast.

Samsung saw plenty of competition during the second quarter, especially in China and Europe. According to Samsung, low-cost Chinese handsets proved fierce adversaries in their home market, which led to inventory gluts of its own entry-level and midrange smartphones. Elsewhere, demand for its high-end smartphones, such as the Galaxy S5, was not as strong as it expected. These slower sales led to reduced orders for the displays and chipsets made by Samsung's other business units. Due to the high levels of inventory, Samsung spent more on advertising during the second quarter in order to help clear out the channel. It is still in the process of selling those devices through to consumers.

[Is this part of the problem? Samsung Galaxy S5 Mini: Dialed-Down Specs.]

Samsung called its tablet sales during the quarter "sluggish." It blamed soft numbers on the longer replacement cycle for tablets, which it says are generally two to three years. It also noted that sales of its large-screen phones, such as the Galaxy Note 3 and Galaxy Mega, cannibalized sales of its small-screen tablets. It probably didn't help that Samsung has released nine tablets since January, including three each in the low-, mid-, and high-end categories.

All told, Samsung is expecting profits to roll in at about $7.1 billion, which is down 24% from the year-ago quarter. Samsung believes products it has slated for the third quarter will help turn things around. Specifically, Samsung is widely expected to debut the Galaxy Note 4 during the IFA trade show in early September.

Samsung Galaxy S5
Samsung Galaxy S5

The market for high-end smartphones is chock full of solid devices from competitors Apple, HTC, LG, Nokia, and Sony. Samsung's confidence in the third quarter is good to see, but the fourth quarter could be disastrous for the company. LG's G3 hits the US market this month. HTC is preparing to roll out its Galaxy Note competitor, the One Max, in the fall. Sony will likely follow up the Z2 with a mid-year update.

The gorilla in the corner is of course Apple. September is when Samsung's arch-rival typically releases new smartphones. This year the company is expected to increase the size of the iPhone to two larger models, sporting 4.7- and 5.5-inch screens. Apple's iPhone 5s is the best-selling single handset in the country despite its smaller display. Apple's move to larger screens could put some serious hurt on Samsung.

Samsung will officially report its second quarter earnings later this month.

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

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PedroGonzales
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PedroGonzales,
User Rank: Ninja
7/10/2014 | 12:38:40 PM
Re: Nice to see
It seems samsung needs to find new ways to compete.  There are all these competidors waiting to cut a piece of the profit from its market share.
Henrisha
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Henrisha,
User Rank: Strategist
7/9/2014 | 1:29:14 PM
Re: Sony
Sony is definitely making a mark in the mobile field. After they shaved off Ericsson off the label, they've done a better job at their smartphones and have grown steadily. I've been eyeing the Z2 for a while now. Versus the Samsung Galaxy S5, seems like the better option too.
Whoopty
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Whoopty,
User Rank: Ninja
7/9/2014 | 10:03:38 AM
Sony
I imagine the resurgence of Sony as a strong mobile brand is helping cut into Samsung's profits. For a while Sony (especially before it split from Ericsson) really fell from grace during the smartphone era, but with its Z1 and more recently the Z2, it seems to have picked up the pace again. Linking up with its PlayStation brand also gives it a nice inroad that the other manufacturers can't compete with. 
Shane M. O'Neill
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Shane M. O'Neill,
User Rank: Author
7/8/2014 | 7:02:26 PM
Samsung overload?
I guess the Galaxy S5 I bought last month didn't help Samsung's profits. Hey, I tried.

I'm surprised to hear Samsung is performing this poorly. They have great advertising and a range of smartphones and tablets. But that's probably the problem. They're overloading the market. Are LG, Nokia, or Sony a real threat to Samsung in mobile? I can't see how. HTC may be though -- HTC is aggressive with the One Max. But Apple is the real "the gorilla in the corner." A bigger-screen iPhone could be the worst thing that's happened to Samsung in awhile. But they asked for it.
Lorna Garey
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Lorna Garey,
User Rank: Author
7/8/2014 | 5:22:37 PM
Re: Nice to see
No, I can't see how it has a chance, either. Unless it's dramatically better than Android, and nothing I have read makes the case that it is, it's DOA.
Thomas Claburn
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Thomas Claburn,
User Rank: Author
7/8/2014 | 5:20:47 PM
Re: Nice to see
Samsung needs to become a software power, but I see no sign that's happening. Tizen, unfortunately, doesn't look like it has a chance.
Lorna Garey
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Lorna Garey,
User Rank: Author
7/8/2014 | 3:37:35 PM
Nice to see
While I feel for Samsung (well, some) as a consumer it's heartening to see such a rich competition ecosystem. Seems like a differentiator could be custom phone accessories; I went into the AT&T store this weekend for a secure SIM card and saw a very slick integrated case with the new HTC model, for example. 
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