Samsung Reports Lowest Annual Profit In Three Years Due To Lagging Smartphone Sales

Samsung Electronics reported its lowest annual profit since 2011 during its earnings call today as its smartphone sales continue to suffer from increasing competition. In 2014, the company’s profit was 25 trillion won, a 32 percent drop from a high of 36.8 trillion won in 2013.

Its 4Q2014 net profit fell 27 percent to 5.3 trillion won year-over-year, in-line with Samsung’s earning guidance earlier this month.

The Korean tech giant reported that its mobile unit’s earnings dropped 64 percent year-over-year to 1.96 trillion won, marketing its fifth quarterly decline in a row. Mobile sales accounted for just 58 percent of Samsung’s total operating profit last year, a significant decrease from 70 percent in 2013. The company said smartphone shipments fell in 4Q2014 and will continue to decline this quarter.

Samsung’s semiconductor business helped buoy up its profits, even though it didn’t make up for shortfalls in its mobile unit’s performance. The unit posted 4Q2014 operating profit of 5.3 trillion won and said its performance will continue to improve as more smartphone and tablet manufacturers order chips from Samsung, especially for high-end devices.

The performance of Samsung’s mobile unit stands in contrast to its arch-rival Apple, which yesterday reported that it had sold a record-breaking 74.5 million iPhones during the first quarter of its fiscal 2015 year. Apple gained ground thanks to the popularity of the iPhone 6 and 6 Plus, especially in China, where it competes with Samsung as well as domestic smartphone makers like Xiaomi and Lenovo.

In fact, research firm Canalys reported that Apple topped smartphone shipments in China for the first time last quarter. This means that Samsung is now in third place, behind Apple and Xiaomi.

During the earnings call, Robert M. Yi, the senior vice president of Samsung Electronic’s investor relations, said that he expected “the business environment in 2015 to be as challenging as in 2014,” due to economic recession as well as intensifying product and price competition and the increasing cost of developing new technologies.

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