Poor performance from Samsung's mobile unit negatively impacted its second-quarter results, which the company reported Thursday, June 30. Sales of the Samsung Galaxy S6 and S6 Edge have been such a disappointment that Samsung said it will drop the price of the smartphones to entice buyers.
Samsung recorded a net profit of $4.93 billion on sales of $41.7 billion. Those numbers reflect declines of 8% and 7%, respectively, compared to the second quarter 2014. Samsung's mobile business improved revenue and profit sequentially, but dropped a hefty 38% year-over-year.
Samsung said problems created by the Galaxy S6 Edge, as well as increased marketing costs, hurt its margins. The company flatly admitted to goofing up the supply mix of Galaxy S6 and S6 Edge. It made far too many S6 handsets, and not enough S6 Edge handsets. It expected a six-to-one ratio, and instead saw a one-to-one ratio. It says the issue has since been remedied.
Low-cost Chinese competitors, such as Huawei and ZTE, have been eating into Samsung's market dominance in the low end, while Apple has been chipping away at the top. It is being squeezed at both ends. Samsung did not disclose total handset shipments, but said interest in its midrange and entry-level models declined significantly. Analysts believe Samsung moved between 71 million and 76 million phones.
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Samsung made big changes to its flagship smartphones this year to combat sagging sales in its mobile phone business. The company ditched the plastic builds of years past and went upscale, with high-quality metal and glass designs. Despite good reviews of the Galaxy S6 and S6 Edge, sales haven't performed as hoped.
Samsung said it plans to lower the price of the S6 and S6 Edge to help maintain what little sales momentum the two handsets have. Moreover, Samsung has moved the launch date of the Galaxy Note 5 up by several weeks. Since 2010, Samsung has used the IFA trade show in Berlin, which generally takes place during the first week of September, to launch its business-focused Note smartphones. This year Samsung scheduled a media event for Aug. 13, where it is expected to reveal the Note 5 as well as a larger version of the S6 Edge.
Clearly Samsung is worried about its mobile phone business and is doing what it can to right a listing ship. Even so, it toned down expectations for the third quarter, which is when Apple -- Samsung's arch enemy -- releases new iPhones.
There was some good news in Samsung's earnings. Demand for memory chips and mobile processors surged during the second quarter, and Samsung's semiconductor unit saw a huge boost in profit. Samsung's other business units, such as its televisions, performed in line with expectations.