Samsung warns of tough 2016 after 4Q profit sinks

Samsung Electronics reported Thursday (Jan 28) a 40 per cent on-year drop in fourth-quarter net profit as its once mighty mobile division struggled with slowing demand for smartphones and weaker chip prices impacted its semiconductor unit.

The result fell short of expectations, even after considering the negative impact from foreign currency exchange rates estimated at 400 billion won. Its operating profit came to 26.4 trillion won, up 5.55 percent from the previous year, but sales dropped 2.69 percent to 200.6 trillion won. Revenue rose 1.1 percent to 53.3 trillion won, compared with 53 trillion won it guided for.

The latest results reflect new challenges for Samsung as two core businesses, smartphones and semiconductors, face a slowdown.

Samsung Electronics, the world’s largest smartphone maker, posted its first profit slump in five quarters as soft demand for smartphones dampened the company’s Galaxy device sales and lowered prices of components such as chips and display panels. Samsung Electronics and Apple together consumed $59.0 billion of semiconductors in 2015, an increase of $0.8 billion from 2014 (see Table 1). It was the second year in a row with a decline in annual net income after the company’s earnings peaked at 30.5 trillion won in 2013.

Samsung isn’t expecting much better. The early releases of new products failed to spark the company’s sales while Apple Inc., Samsung’s biggest customer according to data compiled by Bloomberg, Tuesday forecast its first sales decline in more than a decade.

The world’s top handset maker continued to be squeezed at both ends of the lucrative smartphone market with high-end competition from arch-rival Apple matched by cheaper players like China’s Huawei and Xiaomi.

This is up from an operating profit of $1.62 billion (1.96 trillion won) a year ago.

For all of 2015, Samsung’s net profit shed 18.53 percent to 19 trillion won.

“However, we expect the business conditions to improve in the second half driven by the strong seasonality in set businesses”, he said referring to mobile phones, home appliances and TVs.

Losses in Samsung’s mobile division during 2015 were partially mitigated by brisk business in chips and displays. Sony consumption fell 9.0 percent to Dollars 6.9 million (2.1%).