WSJ: Samsung Now a “Basket Case”, Q3 Operating Profit to Plunge Over 58%

Samsung missed the lowest analyst expectations, as its smartphone business has been hit by the intense competition on two sides: by Apple at the high-end, and Chinese handset makers on the low-end, reports the Wall Street Journal.

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The Korean company announced today that its third-quarter operating profit fell 58% to 62% compared to a year earlier. This was the fourth quarter in a row of falling operating profits.

Apple decided to launch two iPhones, each with two screen sizes, this year, and for the first time we’ve seen the company challenging Samsung in a category the latter pioneered: phablets. 2014 is the year of the iPhablet, since Apple launched the 5.5-inch iPhone 6 Plus, which, by the way, is in high demand despite the “bendgate” (anti)campaign.

We wouldn’t rush into statements such as “Apple’s iPhablet has negatively affected the demand for Samsung smartphones”, since it would be too early to say that, given the iPhone 6 Plus’ 18 days of availability (it officially became available on September 19 in only 10 countries worldwide).

Actually, Samsung’s smartphone sales had already fallen before the Apple announcement. The fourth calendar quarter, however, will have a much bigger impact, as Apple’s target is 115 countries by the end of 2014.

But without essential differentiators like Apple’s, such as design cachet and a software ecosystem, Samsung is headed toward becoming a maker of commoditized hardware. Mr. Chung sees operating margins for handsets and tablets declining to 11% in 2016 from 21% in 2013.

On the other hand, Samsung’s component business, including memory and logic chips, as well as displays, continues to grow, and analysts are confident that this arm will account for more than 40% of operating profits next year, a 10% jump compared to this year.