I want to congratulate Samsung Electronics for matching Apple on a significant measure of a company's notoriety: analyst panics. Apple can't report its earnings without someone foretelling its fall from grace and now the same is true of Samsung. Last night, the Korean company issued a profit guidance that showed significant declines relative to its performance in the previous year: 20 percent lower total sales and a big 60 percent drop in operating profits. There are serious reasons for why this downward trend is worrisome for Samsung, but there's no cause for fatalism.
In fact, the immediate investor reaction following the news was to raise the recently slumping Samsung stock price as "the market thinks this is the worst profit they can expect from its mobile business," according to Claire Kim of Daishin Securities Co. Samsung's smartphone sales account for the majority of its overall profits, so close scrutiny is understandable, but now's not the time to dismiss this company's extraordinary strength and resilience. Even as it falls short of its previous performance, Samsung is likely to tally close to $4 billion in operating profit over the past three months. It also says smartphone shipments are continuing to rise, albeit at a slower pace.
I've been a vocal critic of Samsung's uninspired and plasticky phones and I have openly questioned how it'll contend with smaller upstarts like Xiaomi who are winning by being cheaper and more nimble in their Chinese operations. Samsung already has some answers, however: on the high end, it's preparing to compete with Apple by finally making physically desirable phones, while on the low end it's doing the boring business adjustments of clearing inventory and tweaking prices. While still earning over a billion dollars every month.
Burned by the wrath of a demanding consumer, Samsung's correcting its course
Xiaomi's star is rising in China today, but companies of its ilk will have much greater challenges to overcome as they try to expand beyond their native borders. And while the Moto G and Moto E completely obliterate Samsung's entry-level handsets, Motorola still has to figure out a way to become profitable in itself. With its ownership of Motorola, Lenovo wants to become the perfect blend of the two, however Samsung's already accomplished these things: it's a global company with strong brand recognition that's making money from its smartphone sales. The Korean giant also owns more of its supply chain than any of its competitors, with Samsung phones containing Samsung displays, memory, and processor chips.
Samsung's nose has been bloodied by a smartphone consumer that's savvier and more price-sensitive than the company anticipated. In response, Samsung has set a beautiful new tone for its industrial design with the Galaxy Alpha and released the Galaxy Note 4 in China ahead of the iPhone 6 Plus as evidence of its business agility. With a strong Galaxy S6 and a portfolio of better-designed phones, Samsung can stabilize its incumbent position as the world's leading smartphone seller. As good as it is to see Samsung's past complacency catching up with it, it will be even better to witness the company's efforts at rebounding from the hit.