New Delhi :After leading in smartphone market for years, now South tech giant Samsung is facing crunch.
According to a Reuters report, Samsung is forced to slash prices and accept lower margins at its mobile division.
The drastic step has been taken to see off competition from rivals including China’s Huawei and Xiaomi which have given phones of similar technology at low costs in market.
Behind Samsung’s reality-check is the fact it is stuck with the same Android operating system used by its low-cost competitors, who are producing increasingly-capable phones of their own.
On Monday, South Korean giant Samsung Electronics posted an 8.0 per cent fall in second quarter net profit today and promised “flexible” pricing of its new flagship smartphone after less than stellar sales contributed to a slump in its mobile unit’s earnings.
The world’s largest smartphone maker said net profit for the April-June period stood at 5.75 trillion won (USD 4.9 billion), down from 6.25 trillion won a year ago and slightly below analyst estimates.
The market reacted negatively, with Samsung shares down 2.5 per cent in morning trade.
The conglomerate has now seen its net profit decline for five straight quarters year-on-year, mainly due to heightened competition in an increasingly saturated smartphone market that it had dominated for years.
Operating profit also shrank 4.03 per cent from a year ago to 6.9 trillion won, while sales dropped 7.3 per cent to 48.5 trillion won.
Samsung has faced a double challenge from US arch-rival Apple in the high-end smartphone market and rising Chinese firms like Xiaomi in the mid- and low-end market.
Hopes of a turnaround had largely been pinned on the sixth edition of its flagship smartphone launched in April.
The Galaxy S6 and S6 Edge with a wraparound screen received rave reviews, but company predictions of record sales fell short of expectations, partly due to production and supply constraints.
Operating profit in the mobile division was down 38 percent year-on-year in the second quarter at 2.76 trillion won.
The second half of 2015 would continue to pose “mounting challenges”, the company said in its regulatory filing, with smartphone demand predicted to increase but at a lower rate.
“We will strive to maintain solid sales of high-end smartphones by flexibly adjusting S6 and Edge prices depending on marketing circumstances, while also launching new large-display models,” Park Jin-Young, vice head of communications at Samsung’s mobile division said during a conference call.
The company announced a mid-year dividend of 1,000 won a share compared with 500 won a year earlier.
In an effort to see off smaller rivals nipping at its heels in emerging markets, Samsung slimmed down its line of low- and mid-range smartphones last year, and ramped up production of those that remained in a higher-volume, lower-price strategy.
At the same time, booming memory chip sales have managed to mitigate some of the slump elsewhere, thanks to tight supply and strong pricing.