Samsung Electronics came in front of the world on Tuesday and admitted an 8% loss in the second quarter net profit. The leading smartphone producer then announced a more ‘flexible’ pricing for its new Galaxy S6. In short, Samsung did not make profit so it’s lowering prices in order to boost sales.
Samsung declared that net profit during the April-June period amounted to 5.75 trillion won, an amount that has considerably declined compared to the 6.25 trillion the company had earned one year ago.
Samsung misread market demands. It did not produce enough phones in the end of April, so its older version had to compete with Apple’s iPhones. While Samsung tried to regain its position by advancing the release date for its next device dedicated to high-end users, Xiaomi was slowly, but surely, feeding off Samsung’s demands.
Lee Seung, analyst at IBK Securities, Seoul, declared that Samsung had the chance to upraise profits, but the failure of not having met the golden timing of demand drew them back by quite a large distance. From here on it was just a domino effect.
The market did not react positively and Samsung’s shares dropped down by 2.5% the next morning. Operating profit shrank by around 4% and sales dropped by almost 7.5%. The company will also have to pay a dividend for 1000 won a share while they had to pay only half of that back in 2014.
Samsung’s failure put it in a very tight spot, having to face competition both from Apple and Chinese competitors such as Xiaomi. While it only started mass production for the new model just two months before the deadline, failure to meet the standards allowed competitors to rob it of profit percentages.
As for the S6 model, it appears that Samsung will only be selling 40 million models this year. The expectancy was estimated at around 43 million and the overall smartphone sales target dropped from 340 million to 310 million.
While Samsung remains the number one smartphone producer, this should be a wakeup call. It should remind Samsung that it is successful only as long as it satisfies customer’s needs and finishes projects on time. Failure to comply, even at the slightest, can result in major losses. And it is not only about financial losses we are talking about. It’s about losing the people and their trust. No trust equals no profit and no power.
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