Samsung warned Monday night that its third-quarter earnings will be weaker than expected.
In its Q3 guidance, the company blamed lower average selling prices (ASP) of its smartphones. Operating profit could be 4.1 trillion won, or just under $US4 billion US. That’s down nearly 60% from a year ago. Samsung’s operating profit was $US7.19 trillion won last quarter.
This is a similar story to the one we heard last quarter. Samsung’s profit is declining as its mobile business faces competition from companies that sell smartphones and tablets at much cheaper prices. That eats into Samsung’s profits.
Samsung’s high-end phones run Android, and don’t offer features much different from the cheaper Android devices. In fact, some manufacturers like the Chinese startup Xiaomi are starting to make high-end Android devices that cost about half as much as Samsung’s best phones.
There’s also new competition from the high end. Apple just released two new iPhones, the iPhone 6 and 6 Plus, which have larger screens that rival the big-screen Samsung devices. Samsung is about to release its latest phablet, the 5.7-inch Galaxy Note 4, in the US. But that device will have to compete against Apple’s new 5.5-inch iPhone 6 Plus, which received stellar reviews.
China will be an especially tough place for Samsung to compete. Interest for the iPhone 6 and iPhone 6 Plus is through the roof. And China is where many of those cheaper Android phones are sold. Samsung seems to be cutting the prices of its devices to compensate.