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Samsung's smartphone saturation strategy stumbles

Samsung's smartphone saturation strategy stumbles


Sales of mobile devices haven't matched Samsung's expectations, so the company's spending even more on marketing

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Famed for its ability to fill every conceivable niche in the smartphone market, Samsung is today showing some signs of competitive pressure. The Korean company has just issued its earnings guidance for the second quarter of 2014, accompanying it with an explanatory note detailing why it's falling short of the previous year's record profits.

"The company cautiously expects a more positive outlook in the third quarter."

Aside from the improving strength of the Korean won making exports harder, Samsung identifies a drop in demand for its phones in Europe and China alongside generally "sluggish" sales of its tablets. The Chinese market, in particular, is proving a challenge for Samsung as local competitors like the rapidly growing Xiaomi are outselling the Korean giant.

Having once been the king of entry-level and mid-range devices, Samsung now has a surplus inventory of them, and that's leading to a number of trickle-down consequences. One is the need for extra spending on promotions and marketing, while the other is an impact on the bottom line for Samsung's supply-side businesses such as its semiconductor and display manufacturing arms.

Overall, Samsung anticipates making 52 trillion won ($51.5 billion) in revenue and 7.2 trillion won ($7.1 billion) in operating profit in Q2. Both are incredible numbers in absolute terms, but for Samsung they represent significant dropoffs from the previous year's performance and a continuation of the tepid growth the company exhibited in the first three months of 2014. Looking to the future, Samsung "cautiously expects a more positive outlook in the third quarter with the coming release of its new smartphone lineup." That's almost certain to feature a new Note device, traditionally refreshed every year during September's IFA trade show, and may also include a global rollout of the upgraded Galaxy S5.