Samsung Electronics Inc. didn’t mince words in its latest earnings call, admitting that smartphone and display sales were declining, and that its memory business was picking up the slack.

The company remains profitable – during the second quarter of 2018, it posted a net profit of 11.04 trillion won (approximately $13.3 billion Canadian), but overall profits were lower than both the first quarter of 2018 (when it posted net profits of 11.69 trillion won) and the second quarter of 2017 (when it posted profits of 11.05 trillion won).

And a decline in mobile device sales – which fell by 22 per cent year-over-year and 18 per cent between the first and second quarters – carried a significant share of the blame.

(During the quarter, Samsung shipped 78 million handsets and 5 million tablets, worth 22.67 trillion won in revenue, versus 28.92 trillion won during the same period last year and 27.66 trillion during the first quarter of 2018.)

“Earnings in the mobile business slid considerably year-over-year as well as [quarter-on-quarter] due to weak sales of Galaxy S9 amid a stagnant high-end market,” Samsung senior vice president of investor relations Robert Yi said during the July 30 earnings call.

For the second half of 2018, he admitted that “new model launches and intense price competition in the mobile business are likely to keep conditions challenging. To address rising competition, we plan to launch Galaxy Note 9 early and add new features to our mid- and low-end lineups while continuing to… find ways to enhance cost competitiveness.”

“In the third quarter, we expect… both handsets and tablet shipment to be similar to that of the second quarter,” Yi said.

However, Samsung senior vice president of memory marketing Sewon Chun added, mobile is also driving one of the company’s bright spots: a demand for high-density memory components.

“With new flagship smartphone model launches, every content will increase in midrange models because smartphone makers support high-specification mobile games on device AI and dual camera as differentiation point[s],” Chun said. “Therefore, we expect a positive effect on memory demand.”

Meanwhile, mobile communications business vice-president KyeongTae Lee said that while Samsung expects the next quarter’s sales environment to “remain challenging,” it’s making a conscious effort to increase the sales numbers of its flagship Galaxy line with an earlier-than-usual release of the Galaxy Note 9, which will be unveiled on August 9 at the company’s Unpacked event in New York City.

It also sounds like the company plans to lower the prices of its flagship devices – in Lee’s words, “strengthen price competitiveness” and “aggressively respond to the market condition” while improving their underlying technology.

“Offering more sophisticated specs throughout our line-up will make it difficult to maintain profitability,” Lee acknowledged. “In response, in order to secure our profitability, we will focus on expanding sales of our competitive new models in all segment[s], from flagship to mass models, and secure well organized and effective marketing campaigns.”

In an industry known for its earnings-report doublespeak, Samsung’s straightforward acknowledgment that its device sales are falling behind is refreshing. It conjures memories of the company’s apology for the literally explosive Galaxy Note 7, which Lee may have been alluding to when he cited the financial impact of Samsung “having discontinued production of older low-end model [sic].”

Samsung’s Galaxy X, meanwhile, is rumoured to be a foldable device, so it’s possible the company is just positioning itself for a big comeback.

Our thanks to investment research platform Seeking Alpha for the transcriptions from Samsung’s July 30 Q2 earnings call.



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