Samsung Smartphone Woes: Profits Plunge 60 Percent

Editor in Chief
Updated

Are the next big things now being made by other companies? Facing stiff competition from the iPhone 6 and 6 Plus on the high end and stronger low-end foes like Xiaomi in China, Samsung's weak smartphone earnings are weighing on the company's bottom line. Samsung said today that its operating profit for the third quarter likely fell by close to 60 percent.

Investors don't seem to be all that worried, as the stock seems to have already rebounded. It was up close to 1 percent as of 8 am ET. Some analysts say that the worst may be over and there's been a bottoming out as the company prepares to launch the Galaxy Note 4.

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That's not all Samsung has up its sleeve. The company recently launched the Galaxy Alpha, a smartphone with mid-range specs but a premium metal design (at least the frame). And, according to a Reuters report, Samsung is poised to launch a device in the $300 to $400 range (off contract) to better compete with its low-cost rivals.

Nevertheless, if Samsung's forecast is accurate, this would be the fourth consecutive quarter of earnings declines. 

Collapsing smartphone prices seems to be the biggest culprit. While Samsung's are heading south in the third quarter to the tune of $224 (down from $301), Apple's average selling prices are actually heading higher from $580 to $605.

Samsung has always been about choice, attempting to compete in all market segments, while Apple has primarily stuck with the higher end of the market. But now Samsung faces just as formidable adversaries on the low end, such as Lenovo, Xiaomi and ZTE.

Despite its huge size and monster marketing budgets, it will be interesting to see if Samsung can continue to spread itself as thin, or if it decides to focus on the high tier with more unique products like the Galaxy Note Edge and Gear VR, where the margins are better.

via Reuters

Mark Spoonauer is the editor in chief of Tom's Guide. Follow him @mspoonauer. Follow Tom's Guide at @tomsguide, on Facebook and on Google+.