Samsung Succession Partially Responsible for Falling Profits?

The group’s patriarch Lee Kun-hee has been hospitalized since May following a heart attack, and the succession map for his three children – including heir-apparent Jay Y. Lee – remains unclear.

“Samsung’s heyday has gone. Its profit growth was abnormally high for the past three to four years, and now that is normalizing,” said Chang Sea-Jin, a business professor at Korea Advanced Institute of Science and Technology and author of the book “Sony vs Samsung”.

Samsung’s flagship phone and some could argue their flagship product for the entire company given the tens of millions spent on advertising  is the Galaxy S5. Even though it is a much newer phone than the iPhone 5S released many months before it has failed to take the leader crown from the iPhone is the U.S. and many other markets. Analysts incorrectly at times lump in total Samsung sales of their dirt-cheap flip phone type replacements sold in the third world at little to no profits as indicators that Samsung is “winning” If your definition of winning is the same one shared by Charlie Sheen then perhaps that is true. But anyone with a modicum of intelligence understand that the profits come from the far more expensive phone like the Galaxy line.

Samsung has often resorted to BOGO to move products and inflate their sales figures. BOGO is simply a tactic of giving a free phone away free with the purchase of one. That can at least be partially understood at the end of the product lifecycle but Samsung was forced to go BOGO not long after release. Their snarky ads talking about the next thing is here and attacking Apple directly apparently has not been very successful.

Its foray into wearable devices like the Gear smartwatch, could rightly be called the iFlop. Without an original from Apple to copy from Samsung seemed to strike out with that dud.  That leaves Samsung Electronics under margin pressure and without a clear new growth driver for the immediate future.

Samsung’s cash cow handsets business is suffering from slowing market growth and improving product quality from Chinese manufacturers such as Huawei Technologies Co Ltd [HWT.UL] and Lenovo Group Ltd at the low end and their last safe haven which was selling to people that wanted a large screen is about to come crumbling down with the larger iPhone 6. Samsung will be attacked by Chinese competition on he low end and will likely lose far greater marketshare once the iPhone takes away presumably the only reason people chose a Galaxy. 

For the full year, a poll of 49 analysts forecast Samsung’s operating profit would fall around 7 percent to 34.2 trillion won, which would mark the first drop in three years. ($1 = 1009.6000 South Korean Won) 

 

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