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Samsung Electronics Co Ltd (KRX:005930) Forced to Compete With Apple on Price

Samsung Apple Inc

Samsung Samsung Electronics Co Ltd   seems to be eating humble pie as its inability to compete effectively with Apple in the premium smartphone market resurfaces. Breaking news shows that Samsung will be reducing the price of its latest Galaxy S6 and Galaxy S6 Edge after both devices failed to leave the shelves as expected in the second quarter.

Samsung Apple Inc

Galaxy S6 and S6 Edge Records Dismal Sales

Samsung’s flagship S6 smartphone, which was unveiled in April, did not sell as expected and Samsung is planning to “adjust” prices. Early sales estimate projects that Samsung will ship between 50M and 70M units of S6 and S6 Edge this year.

However, analysts at Deutsche Bank slashed the estimates last month when they projected that Samsung will ship a respectable 45M unit of the devices. Analysts at Deustceh Bank said, “Samsung continues to struggle at the low-to-mid end, while the Galaxy S6 and S6 Edge combined look on course to reach a respectable 45 million units this year.”

The main reasons provided by Samsung for the dismal sales of its flagship smartphones is a case of miscalculations. The firm believed that the demand for the S6 would be greater than the demand for the curved screen S6 edge. Hence, it produced more S6 devices than S6 Edge devices. However, buyers preferred the S6 Edge and the firm couldn’t get it out to the shelves fast enough.

In essence, people didn’t buy the S6 that was available and Samsung didn’t have the S6 Edge that people wanted to buy. Park Jin-Young, VP of mobile communications at Samsung says, “In order to drive up the shipment, we will actively respond to the market, which could have a negative impact on our average sales price.”

Samsung’s inability to make a killing with the S6 and S6 Edge shows that there’s no point competing with Apple in the high-end smartphone market. The android space is simply too crowded and Samsung is just another player. Yoo Eui Hyung, an analyst with Dongbu Securities Co. in Seoul says, “Poor sales of S6 only proved that it can’t beat Apple in brand loyalty among users and just ended up being one of the many Androids”.

Low S6 Sales Kill Samsung

Samsung weak smartphone sales have impacted its financial performance in the just-concluded quarter. Samsung posted Net income, excluding minority interests, of 5.63 trillion won ($4.9 billion) below analyst estimates. Operating profit in its IT and Mobile segment crashed by 38% from 4.42Tr Won a year earlier to 2.76Tr Won ($2.4bn). Samsung’s overall operating profit fell from 7.2Tr Won last year to 6.9Tr Won.

Going forward, analysts are not optimistic about the prospects of Samsung. Peter Yu, an analyst at BNP Paribas SA thinks that the weakness in smartphone sales could spill to other key segments. He says, “if high-end Galaxy S and Note shipments falter, this could lead to sluggish demand for key components such as OLED.” In addition, Jonathan Hwang, a Seoul-based analyst at Daewoo Securities Co. says Samsung’s “mobile, home appliance and display businesses will remain bearish…”

 

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.

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