Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Samsung's China and European Problems Are No Surprise

Samsung (NASDAQOTH: SSNLF  ) recently released its second-quarter guidance, and things didn't look so good for the world's largest smartphone maker. The company expects profit to fall to about $7.1 billion for the quarter, representing a 24% drop year over year.

To help calm investor fears, Samsung released a "reference material" document explaining what's causing the company's profits to fall. But as we've seen in the recent past, these problems may be more than just a one-time issue.

China and Europe issues
Here's what Samsung had to say about sales in China and Europe:

The company "saw increased competition in the Chinese and some European markets." And that increase "led to higher inventories for the medium- and low-end smartphones." In sum: Cheaper rival devices, particularly in China, caused a large amount of Samsung devices to go unsold. In addition to this, Chinese consumers are snubbing Samsung's 3G devices as they wait for more 4G network rollouts in the country.

But we've heard this before. Back in January, Kantar Worldpanel data showed that Samsung sales dropped 2.2 percentage points, year over year, in Europe, and the ambitious smartphone maker Xiaomi unseated Samsung as the top smartphone maker in China during the same time.

In a Bloomberg article published two years ago, Asymco analyst Horace Dediu, said he was skeptical of Samsung's continued strength in its smartphone position because it doesn't control the software its phones run on -- making it hard to keep customers within its brand when cheaper alternatives come along. In China at least, this seems to be coming true for Samsung. 

More problems on the way
At its I/O Conference last month Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) rolled out new smartphone standards, called Android One, aimed at developing markets. Android One is Google's way of getting inexpensive smartphone markers to create devices that meet strict hardware specification standards and ensure the Android software can be continually updated.

Google helped close the fragmentation gap a bit with KitKat, but there are still a lot of Android versions running out there. Source: Android.

With Android One, Google is trying to tackle its software fragmentation problems and in turn help smaller vendors make better devices. But this could eventually have a negative effect on Samsung, as it's already taking a hit from vendors making cheaper Android devices.

Chinese vendors typically use forked versions of Android, but with Android One we could start seeing a lot more smaller companies making official Android devices, pushing Samsung's lower-end devices down even further.

Foolish takeaway
Part of Samsung's problems are actually part of a larger picture for most smartphone manufacturers. Though the South Korean-based company may be taking the brunt of the issues in Europe and China right now, that doesn't mean Apple and LG won't feel some of the same effects. While the iMaker has made China one of its top priorities, the company has been pushed down by Chinese smartphone vendors just as Samsung has.

What's a bit troubling for Samsung is that unlike Apple -- which makes its own OS -- Samsung has to rely on canvasing the smartphone marketing with lots of products and then marketing the heck out of them to generate sales. While that's worked for a while, the latest guidance report suggests this may no longer be a viable strategy in China and Europe.

Leaked: Apple's next smart device (warning -- it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee that its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are even claiming that its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts that 485 million of these devices will be sold per year. But one small company makes this gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and to see Apple's newest smart gizmo, just click here!


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 09, 2014, at 10:25 PM, zippero wrote:

    Tim Cook predicted in his BusinessWeek interview the market would bifurcate between a high-end and a commoditized, low-end, and that's exactly what's happening. Android can't avoid commoditization as the same Android OS is spread across multiple OEMs, and their only weapon against each other is neverending price wars. With falling prices comes falling quality and junkification. In contrast, Apple's unique combination of hardware, software, and services gives it pricing power and the profits to invest in itself and stay on the cutting edge and actually get stronger year after year. The rick get richer, while the poor get poorer.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3022360, ~/Articles/ArticleHandler.aspx, 9/3/2015 9:36:38 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Chris Neiger

Chris has covered Tech and Telecom companies for The Motley Fool since 2012. Follow him on Twitter for the latest tech stock coverage.

Today's Market

updated 20 minutes ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 -16.48 -0.35%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 4:00 PM
AAPL $110.37 Down -1.97 -1.75%
Apple CAPS Rating: ****
GOOG $606.25 Down -8.09 -1.32%
Google (C shares) CAPS Rating: ****
GOOGL $637.05 Down -7.86 -1.22%
Google (A shares) CAPS Rating: ****
SSNLF $932.51 Down +0.00 +0.00%
Samsung CAPS Rating: ***