Samsung misses profit forecast: Is the smartphone market reaching saturation?

Samsung misses profit forecast: Is the smartphone market reaching saturation?

Summary: As the smartphone market runs out of steam, handset manufacturers will have to look to new markets and new devices to boost profits again, warn analysts.

TOPICS: Mobility

Samsung is forecasting lower than expected profits for its second quarter, prompting wider concerns that the smartphone market is becoming saturated.

The Korean electronics giant said sales for the three months ended in June would be approximately 57 trillion won, with an operating profit of 9.5 trillion won ($8.3bn). And while this figure was significantly up on the same quarter a year ago — 47 trillion won and 6.7 trillion won — financial analysts polled by Bloomberg were expecting 10 trillion won.

Samsung is a huge force in the smartphone market. Almost half of all smartphones sold in Europe are a Samsung, for example, and it has become synonymous with the Android operating system.

Samsung started selling its latest flagship Galaxy S4 in late April and sold 10 million handsets in its first month. Since then, Samsung has added a number of variations on the S4, including a Galaxy S4 mini. The performance of the S4 is key for Samsung, which now makes two-thirds of its profits from smartphones.

However, its shares have slid in the past month over concerns that the broader smartphone market is running out of steam, while one analyst quoted by Bloomberg warned of "Galaxy fatigue".

Richard Holway, chairman of analyst house TechMarketView, said the problem is that the smartphone market in the developed world, where the highest prices and margins can be achieved, is reaching saturation point.

As a result, smartphone vendors are looking at cheaper handsets for emerging markets, he said. "All smartphone vendors are bringing out lower-priced units. This will boost volume sales outside the developed countries (like China and India) but will erode margins elsewhere."

All the major smartphone companies are believed to be looking at new wearable tech products to replace smartphones as a profit driver, whether these are glasses or smartwatches.

Holway said: "The profit heydays for smartphones are well and truly over. It is difficult to see the same profits from products from what will replace that genre as smartphones were unique in attracting subsidies from the carriers. iPads, iTVs and iWatches etc will not."

Topic: Mobility

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  • Agreed

    If I remember correctly, Samsung warned that they would begin to see a slowdown in 2013 for this very reason, and their meteoric rises would begin to slow.
    • Mobile business is no different from PC

      Funny how these analysts could not see through the hype. No market can grow forever. If PC has to stall so does mobile.
      • @ LBiege

        Mobile phone business is actually different from the PC business. The PC business grew for about 30 years before it showed a consistent Q-over-Q decline (Q1 2013, Q2 2013). The smartphone business on the other hand has already reached stagnation in terms of unit # in some parts of North America and Europe.

        The problem is with the mobility phone's carrier business model. Carriers paid high subsidies based on initial demand and on initial negotiations with Apple. Sales follow-through existed as long as Steve J was alive. Steve J is gone. And great new features for smartphones are gone too.

        Another reason is the lack of a must-have smartphone for business productivity needs. Enterprises and SMBs are more enthusiastic for use of tablets than they are for use of smartphones for productivity needs. Essentially, some tablets (10" or more) can replace some PC needs. But no smartphone can replace a PC of any formfactor. So I would expect existing smartphone owners to use them for the 4 to 5 year period like they use their PC in businesses.

        Lastly, a hardware dominating business can only grow so much. A real problem is with the limitation in software applications used with smartphones and tablets. There is only so much one can do with touch based UI.

        In hindsight, Microsoft getting out Office for iOS and Android very late was a very very smart move. The demand side is already getting killed. Not increasing it or expanding it was the right strategic move.
      • Errr....

        Analystys are a bunch of idiots - plain and simple. They can't figure out what will be happening in 3 months let alone 3 years from now.
        These same morons claimed that the netbook would be a big it for years to come. By mid-2009, it was dying already.
  • Out of steam? Yep, I think so

    Most people have phones, and complicated contracts limit how often they can replace them. They'll continue to incrementally improve the market for a while, but it is probably time for the major electronics companies to diversify a bit.
    • Agreed. It doesn't take people long to figure out

      that in reference to smartphones, is it really worth spending hundreds of dollars every year for new phones with wild new features they'll never use?
      William Farrel
  • The public is fickle...

    And tires of it's toys fairly quickly. Always has.
    • Carriers have a say now

      Obviously it's a constant cycle but a lot of people don't have the choice to change. I remember 12mth contracts, you could generally keep up with the manufacturers cycle of flagship phones. These days, here at least, 24mth contracts are the norm and unless you're willing to pay high buy-out fees, you're limited to skipping at least one flagship update. Lets see, by the time my contract ends, by current cycles, I should get an upgrade to the S23.
      Little Old Man
  • So, let's see. When iPhone

    sales decline, it's because no one wants Apple phones because the alternatives are just so awesome. When Samsung sales decline, it's because of a maturing, saturated market. Got it.
    • Neither Samsung nor Apple's sales are declining

      They are failing to grow as rapidly as they did in the past.

      The distinction is that Apple is growing slower than the market overall, whereas Samsung was (and still is, actually) growing faster than the market overall.

      If Samsung is growing faster than the market and still slower than they have in the past, it is straightforward logic to conclude that the growth of the overall market is slowing. It is also straightforward to conclude that Samsung is still stealing Apple's share.
      x I'm tc
    • Err?

      Because Apple *WAS* the leader and [for lack of better words] innovated the smartphone. When Apple started to decline when it came to new hardware features, people switched over to Samsung [or others].
  • Carriers, are you listening?

    Your monthly data rates are exorbitant. It's past time to drop your ridiculous prices so that you can reach more customers.

    I believe that the smartphone manufacturers are listening. Samsung is exploring Tizen as an alternative to Android. Also, in late May, 2013, it released the S4 Mini. And I believe that Apple will soon release an iPhone Mini (as they ultimately did with the iPad Mini). The manufacturers could also choose to live with smaller margins in an effort to reach more consumers with lower priced smartphones.

    I, personally, don't believe that the smartphone market has reached saturation.
    Rabid Howler Monkey
    • iPhon mini?

      I think Apple is far more likely to release an iPhone Maxi than something even smaller than the iPhone 4. I'm not sure there are many consumers out there holding out their iPhone 4 thinking "man, I wish this thing were even smaller." But I guarantee there are plenty of iPhone owners out there who have played with their friend's Galaxy Note and though to themselves "man, I wish Apple made a phone this big."
      • It's about iPhone (and data plan) pricing

        dsf3g wrote:
        "I'm not sure there are many consumers out there holding out their iPhone 4 thinking "man, I wish this thing were even smaller."

        If anything in the smartphone market is saturated, it's the premium sub-market. Increasing the iPhone display size as you suggest is an option that Apple might consider for the iPhone which, currently, is a premium device.

        However, if Apple wants to bring in new customers in significant quantity, it will be with a less inexpensive iPhone model. Similar to the iPad Mini, it won't be a bottom-end device, but more of a mid-level device. One option for such a less expensive iPhone model is a smaller display. Perhaps, Apple will use the 3.5-inch display that the iPhone 4 and 4s shipped with.
        Rabid Howler Monkey
      • Nope

        The iPhone has a smaller screen thean the S4. Can't really get smaller.
  • "Galaxy fatigue".....LOL thats a good one

    I mean what did they expect? 200% year-on-year growth for 40 years?

    The way some people have been so passionate about the decline of the PC and the rise of mobile, it looked like mobile space would never experience since a stalled growth.

    We conveniently forget that all products always follow a product life cycle which is made up of 4 distinct phases: introduction, growth, maturity and decline.

    The PC industry was able to maintain maturity for 20+ years before now starting to decline. I wonder if the mobile (as we now know it) can maintain similar growth and maturity....
  • S4 is a piss poor replacement for a solid device...

    ... They phoned it in and they're reaping the result. Simple as that.

    The problem is now they've spent millions on silly advertisements for their gimmicks and even more equipping best buy stores with entire departments devoted to nothing but Samsung. And they're always empty.
    • And....

      So what is a "solid device"? An iPhone? Sure.... Right....
      • Hey retard, reading comprehend, much?

        The S4 replaced a "solid" device called an S3 but you were too busy trying to troll your way into an argument you made yourself appear the fool you are instead.

        This had nothing to do with Apple, despite the fact that I personally use an iPhone 5 myself.
        • Errr anything without fruti

          You accepted that previously, so people think........? So when were you lying then plank? I presume insults are okay or have you changed your mind on that as well.

          While I throw the insults easily, you clearly are a plank having no idea about the S4 at all. It improves on the basics that the S3 laid down. It's step forward no matter what idiots like you wish to mistakenly claim. Not only are you arguing from an uninformed position, clearly having not used one, you're also clearly so stupid as to miss the point that an incremental improvement to a solid device, still makes it a solid device. It may not be a massive innovation but then you, as chief fruit lover, should be more accepting than most.
          Thanks for trying (you're not really in the game at all).
          Little Old Man