Samsung’s Slump

 

Samsung’s poor performance during Q4 2013 has cast a dim outlook for the future. Samsung smartphones, which have spearheaded Samsung Electronics’ growth, seem to have reached a peak, and the stagnant display market is also not expected to improve. In addition, the continuing appreciation of the won is also among many factors that do not bode well for Samsung.

Samsung conducted a two hour conference call, longer than usual, on January 24, trying to give investors a vision of Samsung Electronics. However, the difficulty seems to lie ahead in Samsung regaining its sales owing to seasonal downtime of Q1 2014, and some performance improvement would be expected in the latter half of the year.

Sales of Samsung smartphones have been steadily growing, but declined for the first time in the last quarter of 2013. Experts are generally optimistic about Samsung resuming its sales growth, but at the same time, they are skeptical about the feasibility of Samsung’s strategy.

Samsung’s strategy for improving the information and mobile (IM) sector’s business could be summarized to the following three points: pushing forward sales in burgeoning LTE markets of China and Europe, increasing the sales of tablet PCs in the B2B market, and making forays into wearable device markets. 

A strategy targeting China’s and Europe’s LTE is an unavoidable choice, as high-end smartphones have hit a plateau in advanced markets. Kim Hyun-jun, executive director of Samsung Electronics, said, “This year’s Chinese market for LTE is about 70 million units,” adding, “The expansion of the LTE market will reignite the market for high-end phones, providing another opportunity for us.”

But experts point out that the key to Samsung’s success in China lies in its ability to differentiate itself from Apple and maintain price competitiveness. With Apple forming an alliance with China Mobile and threatening Samsung’s position, it would be a decisive factor for profit improvement if Samsung could succeed in hitting the two birds of profit margin and price competitiveness with the one stone of the mid-end phone market, in which Samsung has shown a relative strength. 
Tablet PCs show high growth in sales, but the issue is overcoming a lower profit margin.  According to Samsung, last year’s sales of tablet PCs doubled compared to that of 2012, and the sales are expected to grow by 20 percent in 2014. However, the profit margin will continue to not be in parallel with the growth, and consequently it is unlikely that tablets will replace smartphones as Samsung’s anchor. 

Amid the slowing display business, Samsung’s device solution (DS) sector defended well for the semiconductor business in Q4 of 2013. Along with keeping the momentum of last year’s semiconductor business, Korea’s IT giant has the goal to improve the display business this year as well. However, as things are not so good even starting from Q1, it remains uncertain if the goal will be accomplished.

Regarding memory chips, Samsung plans to maximize profits by increasing cost competitiveness, and for NAND flash products the company will strengthen the cost competitiveness of general products such as 2D and planners, while focusing on locating new demand markets for 3D Vertical NAND products. 
However, the DRAM price increase trend in the latter half of 2013 has led many to believe that it has hit a peak, thus many doubt the increase can be maintained. Moreover, it is questionable whether or not the AP business can regain its strength, as its market share has been pushed back to a single digit figure for the first time in six years.

The company expects to get the display business back in gear by dividing and marketing both the liquid crystal display (LCD) and organic light-emitting display (OLED) markets into two categories: general products and premium ones. Samsung believes that sales will bounce back in Q2, though sales in Q1 suffer owing to the seasonal down time of the year. 

Experts believe, however, that it is not easy that Samsung’s display business will regain its former glory. There is little sign as of now that the demand for television would improve, and the market for large screen panels for television is continuing to slide. In addition, as the demand for smartphones is shifting towards the mid-end market, things don’t bode well for the display business, which enjoyed a premium with OLED products. 

A researcher at a local securities firm said, “The demand for displays might improve a little bit due to the Galxay S5 launch, but the question as to whether sales will continue to grow will be decided by its initial sales volume.” Regarding tablet PC, he said, “It is questionable whether a wide variety of the models will lead to sales increases, making it difficult to predict the general growth of panels business.” 

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