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

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.
Written by Steve Ranger, Global News Director

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."

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