For Samsung (NASDAQOTH: SSNLF), the newest iterations of its luxury-smartphone line -- the Galaxy S6 and Galaxy S6 Edge -- were supposed to be a reset for the company's beleaguered mobile division. After the successes of the Galaxy S3 and Galaxy S4, the Galaxy S5 found slowing demand, with The Wall Street Journal reporting S5 sales were 40% below expectations as competition from Apple's (AAPL 0.14%) larger iPhone units has hurt Seoul's bottom line.
As a result, the company's mobile operating profit has eroded. Over the last three reported quarters, its mobile operating profit is down 74%, 64%, and 57%, respectively, on a year-over-year basis. And that's important for the company. For example, in Samsung's last reported quarter, its mobile-driven IT and mobile communications division provided 55% of net sales and 46% of its operating profit.
Needless to say, the company is desperate for a smartphone success and appeared to have a have one with the Galaxy S6, at least initially. For Samsung, the Galaxy S6 was a strong departure from previous design with many noting the phone's design looked eerily like its iPhone competition. The model was widely praised with many predicting success -- but if a new report from Korean Yonhap News Agency is correct, Samsung could be another flop.
Worse sales than the Galaxy S5?
According to the Korean website (h/t Business Insider), Samsung pegged its global shipments of the new Galaxy models at 10 million in its first month's release. And while these type of numbers sound impressive -- and they certainly would be for any vendor not named Apple or Samsung -- this is actually fewer units than Samsung reported for its underperforming Galaxy S5 model, which sold 11 million in its first month on the market.
In addition, Business Insider also points out a seemingly minor expression difference that actually matters: sold versus shipped. The former actually means the device was paid for and made their way into hands of consumers whereas the latter includes a mixture of the former while including shipments to third-party retailers (aka: in-channel inventory). For investors, of course, the former is better, as Samsung recognizes revenue when the phone is actually sold -- not shipped.
Is there a bigger issue here?
For Samsung, this result doesn't appear to match earlier overtures in regards to the Galaxy S6's success. In the recently reported quarter, the company's mobile division VP, Park Jin-young remarked, "[I]n all regions, the S6 is selling better than the S5." And while roughly three weeks has passed since that comment, it seems odd the fortunes would change so abruptly. The initial speculation of the unit's success was such that Apple actually was concerned with Samsung's ability to produce Apple's next-gen A9 processing chip.
If this sounds rather deja-vu-like, well, it's because it is. Initial reports from the company in regard to the Galaxy S5 were positive as well. Last May, mobile head and CEO J.K. Shin speculated strong Galaxy S5 sales would lead to higher mobile profit margins and market share while declining to provide specific figures. He went on to provide the aforementioned 11 million units sold figure.
And while nothing Shin said was technically wrong, the extreme bullishness was contrary to what most analysts, investors, and technology watchers though about the company's S5 unit. And while this pales in comparison to the bribing and slush-fund scandal -- that found chairman Lee Kun-hee guilty of tax evasion and financial wrongdoing, only to be pardoned by South Korea's president -- it does show a disconnect between corporate communication, at least in the initial stages, and operational performance. For Apple, however, in the zero-sum game of luxury smartphones, Samsung's struggles are its opportunities.