Samsung's fourth quarter earnings out, profits down 40%

Samsung has released its consolidated fourth quarter earnings for 2015 and they don’t paint a pretty picture. Samsung’s earnings for the final quarter of the year were far from good, with the South Korean giant reporting net profit of just 3.2 trillion Korean won ($2.7 billion), a massive 40% drop and well below earnings expectations.

Samsung’s quarterly revenue remained relatively unchanged at 53 trillion won ($44 billion) although operating profit increased to 6.14 trillion won ($5.1 billion). A “difficult business environment and slowing IT demand” were held accountable for the massive drop in profitability, but these were compounded by a weakening of Samsung’s semiconductor, memory and display divisions, which have been picking up the slack for a diminished mobile division in recent times.

“Strong economic headwinds”

Samsung faced “strong economic headwinds, including a sharp fall in oil prices” during the quarter, producing yearly revenue of 200.65 trillion won ($167 billion) for the year with operating profit of 26.41 trillion won ($22 billion), although sales increased progressively throughout the year. The company is predicting tough times ahead for 2016, especially in its mobile division, which has been struggling to turn things around. Nevertheless, Samsung is still the number one smartphone seller in the world, according to IDC.

The IM division, which includes both Samsung Mobile and IT, saw a quarterly revenue of 25 trillion won ($21 billion) with operating profit of 2.23 trillion won ($1.85 billion). For comparison’s sake, that’s a 7.5% drop in revenue for the year compared to 2014 and a 30% drop in operating profit. Samsung reported a QoQ drop in smartphone shipments “due to a year-end inventory adjustment” with increased marketing spend affecting the bottom line.

“Softening demand and intensifying competition”

As for 2016, this is what Samsung had to say in a statement: “In the first quarter, although slowing demand for smartphones and tablets is forecast due to seasonality, and in spite of slowing shipments of Samsung smartphones, an enhanced product mix with the introduction of new line-ups, such as the Galaxy A (2016) series, is expected to help stabilize sales and profitability.”

But Samsung is expecting single-digit growth in both smartphone and tablet sales in 2016, citing “softening demand and intensifying competition”. The earnings statement is full of pledges of increased profitability and shipments throughout the year ahead, but with very little to back it up. Samsung Pay, wearables, software and tablets are all expected to increase to Samsung’s bottom line.

Samsung expects a tough year ahead

With excess chipset and memory supplies in the fourth quarter and diminished profitability for the display division as well, the areas Samsung has been relying on to compensate for a borderline mobile business are now also in trouble. Massive investment in a flexible OLED factory, new chipset customers like Qualcomm and new Internet of Things and Smart Home products are expected to soften the blow, but they can’t cover up the fact that Samsung is facing a very tough year.

Do you think Samsung will get out of this slump? What areas do you think it should focus on?

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