Samsung sees a huge drop in profits in the Q3 year over year

The South Korean smartphone giant Samsung is having a bad year so far. Samsung had indicated earlier this year that it was expecting a drop in Q3 profits. Samsung said that the second half of 2014 would remain a challenge to sales. On Monday, Samsung announced that it is expecting a decline of nearly 60 percent in its profit in the third quarter. It expects to record an operating profit of $3.8 billion for the quarter that ended on September 30, a 59.7 percent drop from the third quarter profit of 2013.

The biggest chunk of Samsung’s profit comes from smartphone shipments, which usually accounts for two-thirds of its operating profit. Although the shipment profit increased marginally in the quarter, but higher marketing costs and lower selling prices for the high-end handsets put a severe dent in their profit margins from exports. This announcement does not come in as a shock to the market analysts because they had already expected that the third quarter is going to be a tough for Samsung and they have predicted as such that Samsung’s operating profit would tumble by about 42 percent while the sales were expected to drop 14 percent. Samsung is quite disappointed at the performance of its products and is facing tough competition from low-budget smartphone making companies in emerging markets like India and China. Its long standing rival Apple is also giving stiff competition in the price range in which both cellphone makers sell their handsets. According to IDC reports, of the five largest smartphone vendors in the world, Samsung was the only one that saw shipments fall year-after-year in the second quarter. Samsung admitted that it was tough to sell its older 3G phones in China as the country is shifting to 4G LTE technology.

The cellphones that made Samsung the biggest smartphone brand were the earlier large screen Galaxy models. But Apple released larger-screen iPhone plus recently which has taken away that advantage from Samsung. The iPhone 6 and iPhone 6 plus have really narrowed the gap between Samsung and Apple in terms of screen sizes even though Galaxy phones still have slightly larger screens. Samsung even launched its Galaxy Note4 a week or two before its scheduled release date to get a head start over Apple in china. It is losing the momentum that it had a year or two ago. Samsung has started to realize its position in smartphone industry and is moving to step up its presence in the Semiconductors industry.

Samsung has been badly hit by the drop in profits in the third quarter and has announced a $ 14.7 billion investment to build up a semiconductor fabrication plant in the South Korean city of Pyeongtaek. The construction of the plant will begin before the summer and it will begin operations during the second half of 2017.

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