Is Samsung Overly Reliant on Smartphones?

      October 07, 2013 12:30

      Samsung Electronics achieved record earnings in the third quarter of this year, but experts warn that the smartphone market faces huge risks. The biggest problem is Samsung's dangerously high reliance on smartphones to drive up revenues.

      Although the electronics giant did not reveal earnings by individual business division, analysts believe the mobile division, which includes smartphones, accounts for 65 percent of total quarterly operating profit of W10.1 trillion (US$1=W1,070).

      In turn, Samsung Electronics accounts for 66 percent of the entire Samsung Group's revenues. That means that slow smartphone sales could rattle the entire group badly. Experts warn that Samsung must come up with new growth engines for a time when the global smartphone market is saturated. Otherwise it could go the way of former rivals Nokia and BlackBerry.

      Samsung is confident that its strong performance in the smartphone market will continue. Sales of the Galaxy S4 remain strong, and those of the Galaxy Note 3 released recently will be reflected in fourth-quarter earnings, according to the company.

      But market conditions are not entirely favorable. Market growth for premium smartphones is slowing, and Chinese rivals are catching up quickly in low- and mid-priced phones, which have the strongest growth potential in the years ahead.

      Even Apple, which stuck to high-end phones for years, has started to sell mid-priced phones as well.

      It remains to be seen whether Samsung can meet its target of selling 100 million Galaxy 4Ss, said Kim Ji-woong at E*trade Securities. He said analysts lowered their earnings expectations for Samsung Electronics, triggering its share price and market cap to fall. In June, JP Morgan lowered its smartphone output forecast for Samsung, causing the company's market cap to decline by W15 trillion in a single day.

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