Samsung earned $14.13 billion in operating profit in the fourth quarter of last year but this stellar performance can't really be attributed to the company's mobile division. Samsung's mobile business has been under pressure for quite a while now due to several factors such as increasing competition from Chinese rivals in key markets.
The company released its earnings results for Q4 2017 today and they reveal that the struggles of its mobile business are far from over.
It may get worse before it gets better
Samsung's mobile division posted 25.47 trillion won or $23.8 billion in consolidated revenue for the quarter with an operating profit of 2.42 trillion won or $2.2 billion. Revenue is flat compared to the same period in 2016 while the operating profit is slightly down compared to 2.50 trillion won or $2.34 billion in Q4 2016.
Samsung attributes this to a surge in marketing costs during the holiday season. It also mentions that total smartphone shipments decreased in Q4 2016 due to the lineup optimization of its low-end models. Samsung does point out that shipments of flagship products like the Galaxy Note 8 were up compared to Q3 2017.
The company doesn't provide shipment figures so it's difficult to ascertain precisely how many units it shipped in the previous quarter and by what percentage shipments of its premium handsets increased.
Samsung expects its mobile division to perform better in 2018 on the back of growing replacement demand for premium smartphones. It's also going to optimize its mid and low-end lineups further to achieve qualitative growth of the smartphone business.
However, the company forecasts weak demand for smartphones and tablets in the first quarter due to low seasonality, not to mention the fact that many customers will hold off buying a new flagship until the Galaxy S9 comes out. Samsung expects to increase its shipments in this period by pushing the new Galaxy A8 and Galaxy A8+ (2018).
From the looks of it, it's going to get worse before it gets better for Samsung's mobile division. It's already having to deal with saturation in the flagship segment and the company has been coming under increasing pressure from the likes of Xiaomi in key markets like India. It's being squeezed at both ends and unless Samsung takes major steps to increase its profit margins while also effectively competing against Chinese rivals, it's mobile division may not contribute much to the bottom line.
