Another year of falling profits expected at Samsung

2014 was not a great year for Samsung. Despite still leading the smartphone market with huge sales, the company saw quarter after quarter of declining revenues and falling profits, reversing consecutive years of financial growth. While still far from struggling, 2015 looks to be another year of smaller profits for Samsung, although the flood gates appear to be closing.

According to data compiled by FnGuide Inc, Samsung is expected to generate 20.8 trillion won ($1.91 billion) in net profit by the end of 2015, a decline of 6 percent from the estimated end of 2014. Between 2013 and 2014, profits are anticipated to have declined by a far more substantial 27.3 percent, from highs of 30.5 trillion down to 22.1 trillion won. Samsung will release official figures for 2014 later this month.Unfortunately for Samsung, both revenues and operating profits have been falling over the past twelve months. Revenue is estimated to have declined to 205.4 trillion won in 2014, a fall of 10.5 percent year-on-year. This marks the first time in nine years that Samsung’s revenues have shrunk YoY. Even worse, Samsung’s operating income is estimated to have dipped 32.2 percent YoY to 24.9 trillion won in 2014, possibly due to the company’s ever increasing R&D budget, amongst other factors.

Although profits are expected to fall again this year, the rate of decline appears to be coming closer to a halt in 2015. A show of stability throughout 2015 could reassure unnerved investors that Samsung is settling into a more stable role in the smartphone market, following years of successive growth as the mobile market quickly expanded with new technologies.

“The record-high earnings in 2013 were possible because Samsung was ahead of everyone else in the competition,” – Roh Keun-chang, HMC Investment & Securities Co.

As we saw throughout 2014, lacklustre revenues from Samsung’s gigantic smartphone business are mostly to blame for the drop in profits. A combination of Western market saturation, stagnation in mobile technologies and the rise of low-cost OEMs in the world’s fastest growing markets are all said to have contributed to a tougher year for the tech giant. Analysts at HMC Investment & Securities Co. forecast a 32 percent YoY fall in profits from Samsung’s mobile division this year.

On the plus side, Samsung’s semi-conductor business is expected to help prop up profits come the second half of 2015. Samsung is moving ahead with smaller manufacturing processes this year and will be well placed to provide products to competing technology firms.

2015 may be the start of a new year, but Samsung still has many of last year’s problems to overcome if it wishes to return profits to an upward trajectory.