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Samsung anxious over shrinking premium smartphone market
JANUARY 25, 2014 07:00  
"Quarterly performance deteriorates; annual earnings hit all time high"

Samsung Electronics announced on Friday the final tallies of its annual performance and fourth quarter earnings in 2013, which are incompatible with each other. The electronics giant said it posted 8.31 trillion won (7.69 billion U.S. dollars) in operating profit of 59.28 trillion won (54.91 billion dollars) in sales in last year뭩 fourth quarter. Quarterly sales increased by 200 billion won (185 million dollars) from the third quarter, but operating profit plunged by 1.85 trillion won (1.71 billion dollars), an 18.2 percent decrease. The quarterly sales are up 3.22 trillion won (2.98 billion dollars) or 5.7 percent year-on-year, but the operating profit is down 530 billion won (491 million dollars) or minus 6 percent.

However, Samsung Electronics posted 36.79 trillion won (34.08 billion dollars) in operating profit of 228.6900 trillion won (211.8 billion dollars) in annual sales last year, which are all time high. The sales and operating profit surged to 27.59 trillion won (25.55 billion dollars) or 13.7 percent, and 7.74 trillion won (7.71 billion dollars) or 26.6 percent, respectively, from 2012.

Samsung Electronics said, 밣erformance temporarily slumped in last year뭩 fourth quarter due to a waning price competitiveness stemming from the strengthening won (a fall in the won-dollar exchange rate), depletion of inventory at year뭩 end, and payment of incentives to employees to mark the 20th anniversary of the new management drive. Critics say however that 밽rowth engine that has been powering Samsung Electronics over the years may be facing signs of setbacks.

○ Smartphone market shifting towards low-end products

밒t would be rather comfortable if earnings deteriorated due to a misguided market strategy or a sudden slowdown of the economy. The problem is that the market trend is moving in a direction in our disfavor.

A source at Samsung Electronics said change in the smartphone market, which served as "single major driving force of growth" by accounting for more than 60 percent of its overall operating profit is rather significant. Its IT mobile (IM) business, which is responsible for smartphones, posted 5.47 trillion won (5.07 billion dollars) in operating profit of 36.57 trillion won (33.878 billion dollars) in sales in the fourth quarter. Sales were up 5.86 trillion won (5.428 billion dollars) or 19.1 percent in year-on-year, but operating profit was stagnant.

The reason for its slump is constant contraction of the premium product market, in which the products are priced at 300 dollars or more per unit, and which Samsung has been spearheading. According to Strategic Analytics, a market research firm, the portion of the premium smartphone market, which took up 53.5 percent of the overall smartphone market in 2009, contracted to 34.9 percent last year.

Samsung뭩 smartphones were priced at 272 dollars per unit in last year뭩 third quarter, while Apple뭩 products were sold for 575 dollars on average. A source in the electronics industry said, 밫his means that as growth in the premium smartphone market has reached the limit, Samsung is significantly expanding its supply of low-end products.

Analysts say if the portion of low-end smartphones increases in the overall market, Samsung could face more aggressive challenge by Chinese firms, including Huawei and Lenovo, which boast strong price competitiveness.

○ Innovative technology not necessarily seen as new breakthrough

Samsung Electronics is seeking breakthroughs that will enable it to offset its slowing growth in the smartphone market. One of them is ultrahigh definition TVs. At the Consumer Electronics Show 2014 held on January 7 to 10 in Las Vegas, the U.S., Samsung unveiled a string of UHD TV models. They include the world뭩 first flexible TV, whose screen can be bent.

However, some analysts say that growth of the new premium TV market cannot be guaranteed. The reason for this is that many of the consumers are satisfied with video resolution of high definition or full HD TVs, which adopt lower-grade technology than UHD TVs. Samsung is also worried that because many consumers think "current level of technology is sufficient," the market could not grow as much as it expects.

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