Samsung Electronics (KS:005930) Co. Ltd. (OTC:SSNLF) , the leading global manufacturer of smartphones and memory chips, introduced the world’s first mainstream foldable screen. However, the company’s new foldable phone, despite having exciting features, is unlikely to turn the company’s slumping profits around.
The South Korean chipmaker reported disappointing fourth-quarter net profits last month due to a decline in demand for its chief products. The company’s net profits during the October-December period were $7.6 billion, a 31% decline on year-over-year basis.
Q4 Profits Decline, Poor Earnings Outlook for 2019
Samsung attributed its poor fourth-quarter performance to “unfavorable business and macroeconomic factors”, which affected demand for memory chips used in smartphones and data centers. The chipmaker also reported a lower fourth-quarter operating profit of KRW 10.8 trillion (about $9.7 billion), recording a 29% decline from the year-ago period.
In addition, the company expects 2019 earnings to decrease anticipating poor performance of its memory business. Weaker demand stemming from the Chinese market was a major factor behind the company’s poor earnings outlook for the year. Samsung also expects chip sales to be lower during the period because of seasonality and inventory adjustments by its major customers.
Why Samsung’s Galaxy Fold May Not Revive its Profits
Samsung introduced a whopping $1980-priced phone at a time when the company is struggling to push its profits up. It is questionable how far the new smartphone’s features and designs can lure customers to invest so much.
Although Galaxy Fold’s conveniently foldable screen is remarkably innovative, the phone’s other features might not be enough to grab customer attention.
High-end smartphone makers such as Samsung and Apple Inc. (NASDAQ:AAPL) are losing ground to companies like Xiaomi, Oppo and Huawei due to their high price tag. Since the technical improvements are not radical, customers choose to upgrade their lower-priced phones.
According to tech research firm Gartner, Huawei's share of the smartphone market rose almost 15% in the fourth quarter, up 4 percentage points from the year-ago period, CNBC reported. In contrast, Samsung and Apple, which led the smartphone market space with 17% and 16% market share, respectively witnessed a drop of 2 and 1 percentage points.
By the way, Samsung itself has more affordable, feature-enriched phones that could attract customers more than its latest exorbitantly priced smartphone with less appealing features. Therefore, it is unlikely that Samsung’s new phone will record stellar sales that could turn around its net profits in the near future.
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