of record profit growth, tech giant Samsung Electronics looks to be at a
commercial crossroads as it searches for a new growth driver to counter
slowing sales of its phenomenally successful smartphones.
bells have been sounding for a while over Samsung's reliance on
smartphone sales in increasingly mature markets such as Europe and the
United States, and increasingly competitive emerging markets like China.
world's largest smartphone maker has a diverse product line ranging
from memory chips to home appliances, but more than half its profits are
generated by mobile devices.
Last week, Samsung said it was on
track for a second consecutive quarter of year-on-year profit decline,
and its stock price fell nearly 10 percent in 2013 - the first annual
drop in five years.
Friday saw the global roll-out of the latest
version of the flagship Galaxy series smartphone, the S5, whose
performance will be closely watched.
While reviews have rated the
S5 a top-class product, they note that it offers little in the way of
real innovation that would set it apart from previous versions and
models offered by competitors such as Apple.
"I think the market
really needs a new growth driver at this point," said Lee Min-Hee, an
analyst at IM Investment and Securities, noting that the high-end
smartphone market "is already saturated".
"So it's inevitable to shift to mid-and low-end markets where margins are tighter and competition is even more fierce," he said.
did well this year on cutting costs - including marketing spending,
but these are only defensive measures to make up for slowing sales and
to maintain profits, not a proactive move to innovate."
that Samsung and South Korea's other export powerhouses are also feeling
some strain from the strength of the won currency, which last week hit
its highest point against the dollar since August 2008.
said sharp currency swings cost it 700 billion won ($676 million) of
lost revenue in the fourth quarter of 2013, when its operating profit
came to 8.3 trillion won - a 6.0 percent decline on the previous year.
there appears to be a general consensus that smartphone evolution has
hit a barrier that will only allow incremental improvements on existing
design and technology, rather than market-changing re-invention.
Next big thing?
see wearable devices - such as Google Glass - as the "next big
thing". IT research and advisory specialists Gartner Inc. predicts
wearable technology will emerge as a $10 billion dollar industry by as
early as 2016.
Samsung's first Internet-enabled smartwatch,
introduced last September, was given a lukewarm reception by consumers
who disliked its chunky design. A second edition, the Gear 2, was
launched in February.
"I believe the next big thing will be
Internet of Things (IOT) in which all household appliances, electronic
devices and even cars are connected through the network," said Lee.
"And the first step towards the era of the IOT is wearable devices," he added.
Electronics certainly has the financial clout to invest heavily in new
technologies with a net cash balance of more than $50 billion.
rare analysts' briefing in November last year, president and chief
financial officer Lee Sang-Hoon said the reserves would be used to fund
significant investment in research and development.
"It's way too
much of an exaggeration to say it's all downhill from here," said Suh
Won-Seok, an analyst at Korea Investment and Securities.
its economies of scale and relations with mobile carriers around the
world, I believe it can maintain the 10 percent margin it needs to
prevent any dramatic profit decline," he said.
Samsung is already
making margin concessions with the S5, launching it at a slightly lower
price than its predecessor the S4 and throwing in a premium software
bundle estimated at more than $500.
Nevertheless, Greg Roh at HMC
Investment and Securities said they had had cut their forecast for
Galaxy S5 shipments for the year to 44 million, from the previous
estimate of 46 million.
"We also slashed our forecast for
Samsung's second-quarter sales and operating profits by 1.5 percent and
2.7 percent, respectively," Roh said.
"It's true that Samsung is
good at producing profits despite slowing smartphone growth, but for now
it looks inevitable that the operating profit falls this year," he
Adding to Samsung's headaches is a continuing series of patent-focused legal battles with arch-rival Apple.
fresh trial opened in the United States earlier this month, with Apple
vowing to prove that Samsung flagrantly copied iPhone features and
should pay more than $2 billion in damages.