Samsung’s just reported profits this quarter are to drop 60%. Sign of declining smartphone industry?

Smartsphone industry is very dynamic. China smartsphone like Huawei and Xiaomi are able to produce the same capability phones at a fraction of Samsung cost.

Hi there!

Indeed, this could be a manifestation of the declining smartphone industry and many smartphone giants have been facing the brunt of it, especially in this few quarters. To address your question, Samsung's earnings guidance for the first quarter of 2019 doesn't look optimistic where it estimates a 60 percent year-on-year decline in operating profit in the three months ended March. However, the decline in Samsung's expected profits is not just attributed to the sale of its phones, but also due to slowing demand for its chips and displays (which it sells to Apple).

In fact, this is not really that surprising, given how its counterpart Apple, had weaker than expected earnings from the sales of iPhone, resulting in declining revenues as well.

It is reported that Apple’s results were weighed down by plunging sales of its iPhones, its most important product line. The company posted $51.9 billion in iPhone revenue. In the same period a year earlier, it pulled in $61.1 billion from selling iPhones.

However, the decline of profits from sales of phones from Apple and Samsung may not only be attributed to the decline of the industry, but the rise and prominence of other competitors coming into the fore. For example, Huawei are gaining market share with low-cost phones, when compared against the likes of Apple and Samsung.

In March 2019, Huawei reported a net profit of close to $9 billion in 2018, driven primarily by its smartphone business. Profit was up 25% compared to the previous year, while Huawei’s revenue for the year increased by almost 20% to reach $105 billion. It is interesting how Huwei manages to perform so well, given the fact that China was beset by the ongoing trade war for the 2nd half of 2018.

TL;DR

1) Declining profits for Samsung and Apple due to weaker global demand and consumer confidence

2) Rise of Huawei due to its low-cost, high-quality alternatives