Samsung Electronics Co.’s smartphone business division suffered a setback in operating profit in the second quarter despite an increase in sales of the Galaxy series. The company’s profitability worsened due to intensifying competition with Chinese companies such as Huawei Technologies Co. and Xiaomi Corp.
The operating profit of Samsung Electronics’ IT & Mobile Communications (IM) division which is in charge of the smartphone business is estimated to be in the bottom end of the 2 trillion won (US$1.70 billion) range in the second quarter this year, according to securities industry sources on July 3. It is lower than the 2.67 trillion won (US$2.27 billion) posted a year earlier and could be lower than the 2.27 trillion won (US$1.93 billion) recorded in the previous quarter.
The outcome runs counter to the steady sales growth of the Galaxy series. Samsung’s smartphone shipments have been showing an increase after falling to 70 million units in the fourth quarter last year. The figure is expected to record 74 million to 75 million units in the second quarter.
The Galaxy S10 series, the flagship smartphone for the first half, also sold more than 10 percent more units than the previous Galaxy S9 series. Nearly 16 million units of the Galaxy S10 series smartphones were sold between March and May, which was 12 percent higher than the previous model, according to market research firm Counterpoint Research Inc.
However, sales slightly slowed down in the second quarter compared to the early period of the release because of the stagnation of the premium phone market due to a lengthened replacement cycle for smartphones. Counterpoint Research expects that sales will grow again when the Galaxy S10 5G phone is launched in major countries.
Despite growing sales, Samsung Electronics’ profitability appears to have worsened as the Galaxy A series, which is a mid- to low-end line, offers premium features. The company has been applying its innovative technologies, such as multi-camera and optical fingerprint recognition, to the Galaxy A series since last year. This is part of its strategy to compete with Chinese manufacturers in emerging markets.
The Galaxy Note 10 and the Galaxy Fold will be released in the second half, and sales of these new models will determine the firm’s overall performance. The Galaxy Note 10 will be unveiled on Aug. 7 (local time) in New York, while the Galaxy Fold is forecast to be launched in September in order not to distract attention.