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7/31/2014
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Samsung, Sony, HTC: Smartphone Struggles

All three companies saw smartphone sales decline, thanks to fierce competition and a changing market.

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The second quarter was not kind to some of the world's biggest smartphone makers. Samsung, Sony, and HTC all reported earnings that reflected troubling trends in smartphone sales. With new Apple iPhones on deck for a September debut, the companies have plenty to fear heading into the back half of the year. They may combat the iPhone with new high-end models of their own.

Samsung, the world's largest supplier of cellphones, said profit fell by 20% to $6.1 billion and revenue fell 8.9% to $50.1 billion. Samsung hasn't seen a profit drop since 2011. The company admitted to overestimating smartphone demand. It shipped a lot of devices, many of which are sitting unsold in the sale channel.

Samsung's mobile device business, which generates the most profits, saw a net decline of 30%. In the first quarter of the year, Samsung's mobile business contributed to 76% of the company's profits. In the second quarter, that plunged to 61%. Samsung blamed fierce competition in emerging markets and local currency fluctuations.

[What's new with Windows Phone? See Windows Phone 8.1 Update: 7 Key Facts.]

Samsung is planning several new devices to help reverse the downward trend. The company is widely expected to debut the Galaxy Note 4 in early September. The fourth-generation phablet may be among Samsung's first to boast a sapphire screen and other new technologies. The Note 3 was a solid seller for Samsung during the latter months of 2013 and early months of 2014. Samsung also hinted that a new high-end model to combat the iPhone 6 will arrive sometime in the next six months, but the company provided no specifics.

The PlayStation 4 saved Sony's financials during its first fiscal quarter, which ended in June. Strong sales of the gaming console offset weak performance from Sony's mobile handset business, which continues to struggle. Sony recorded a profit of $679 million, handily beating analysts' estimates for the quarter. The company plans to cut 5,000 jobs from its TV division, and will spin the TV business off into a separate unit to improve its performance.

Sony had no words of encouragement regarding its mobile phone business. After initially forecasting shipments of 50 million for the year, the company now believes it will ship only 43 million. Sony rarely sells devices in the US, as wireless network operators AT&T, Sprint, T-Mobile, and Verizon tend to shun its products.

"It is possible the [smartphone strategy] review might result in an impairment charge against various assets in the mobile communications segment," said Sony CFO Kenichiro Yoshida. "We are also discussing whether to change the number of phones in our lineup and adjust their lifecycle." Sony generally sells one or two flagship devices per year, with a greater number of mid-range devices thrown into the mix. The Z2, its current flagship, was announced in January. None of the US network operators picked it up, however, and Sony is selling it directly to consumers for $650. Sony is expected to debut a refreshed version of the phone in September.

Things look even worse for HTC. Sales of the HTC One (M8) helped during the company's fiscal second quarter, but sales are already slowing as HTC moves into the third and fourth quarters. The One (M8) is one of the best-reviewed devices of the year, but it has not made significant gains against Samsung and others. "Some of our products, after the initial excitement, have settled at a lower level," said CFO Chialin Chang. "But the good thing is it is stabilized."

HTC said it believes it will post a profit during its fiscal third quarter, but warned it may need to cut sales and marketing costs. The company has managed to turn its financials around in recent quarters, but it is still hungry to regain the market share it once held. "For HTC, to start gaining market share is important," said Chang. "We have gone through a transition period." HTC made the very first Android smartphone and ascended quickly in the market before plummeting thanks to Samsung. HTC will introduce new products in the coming months, including a high-end Windows Phone device, to offset the competition.

Samsung, Sony, and HTC's travails don't reflect the larger trend in the smartphone market. IDC recently reported a new quarterly record, with 295 million devices shipped worldwide. The analyst firm believes the third and fourth quarters will see shipments surpass 300 million. Demand for high-end flagship phones may be strong in developed markets, but all the growth is happening in emerging markets. Samsung, Sony, and HTC all target the high end more than middle- or entry-level markets. Perhaps that's something they should change.

IT must support employees on the go as well as build mobile apps for customers. Both initiatives still have a long way to go. Get the new Frictionless IT: Mobility issue of InformationWeek Tech Digest today (free registration required).

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

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shakeeb
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shakeeb,
User Rank: Black Belt
7/31/2014 | 11:34:13 PM
Re: HTC M8
@H@mmy – yes HTC M8 did great on the market, the phone seems quite handy and the specs are great too when compared to other leading brands. 
shakeeb
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shakeeb,
User Rank: Black Belt
7/31/2014 | 11:32:35 PM
Re: competition
@H@mmy – yes completion is why we see such good innovations in the smartphone world. I'm sure we will have lot more.  
jgherbert
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jgherbert,
User Rank: Ninja
7/31/2014 | 11:31:35 PM
Re: competition
I was more surprised to read that they had supposedly stuffed the channel to such a large extent. That seems like an odd choice from a company with such experience in managing their supply chain who you'd think could manufacture in a more just in time basis.
Hospice_Houngbo
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Hospice_Houngbo,
User Rank: Strategist
7/31/2014 | 3:51:41 PM
Re: HTC M8
HTC has been strugling in the smartphone market for years now. It is the survaival of the fittest. HTC, was Apple's strongest smartphone competitor in the U.S. about four years ago. It has since lost much of its global market share to Samsung. And things may not improve in the short term for HTC as it is facing tough business conditions.
Hospice_Houngbo
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Hospice_Houngbo,
User Rank: Strategist
7/31/2014 | 3:45:21 PM
Re: competition
Samsung makes great products, but smatphone demand isn't as high as it was estimated. Users want to hold onto their device as long as possible.
H@mmy
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H@mmy,
User Rank: Moderator
7/31/2014 | 2:56:13 PM
HTC M8
"The One (M8) is one of the best-reviewed devices of the year, but it has not made significant gains against Samsung and others"

Another surprise to read ! HTC spent great for marketing M8. I remember Europa Football League was sponsored by HTC, keeping new M8 in mind. This phone has great specs and its astonishing to read that it couldn't compete well with Samsung and others.
H@mmy
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H@mmy,
User Rank: Moderator
7/31/2014 | 2:51:53 PM
competition
Competition always brings better products I believe. Its surprising to read Samsung is also part of the list. I hope this competition is meaningful for the end user.
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