Samsung has been facing decline in profits in the last two quarters of the year. This went to as high as 49% in the third quarter net profit. This comes due to stiff competition from cheap Chinese models sold by Xiaomi and Huawei, while at the top Apple is still solidifying it’s sales. Samsung at an investor briefing in New York announced that they will be reducing the number smartphone models.
Come 2015, Samsung is looking to trim down the number of models down by between 25-30% according to Robert Yi, head of investor relations at Samsung. This is a move that is expected to cut costs of marketing of individual smartphones and better compete with the cheaper Chinese models.
Samsung will also share components across devices in the mid range and low end smartphones more in a bid to get economy of scale leverage. Mass production of components with same specifications is cheaper than producing numerous designs and this increase in shared costs is also in line with costs reduction.
Samsung has dropped operating profit margins from over 15% to 7% in the last quarter reported, basically a low that has not been seen since the time of the first Galaxy smartphone. It’s time to re-evaluate the operating costs and get back to stable footing. Samsung estimates a realistic move to 10% by next year.
Samsung has already overhauled the design language of their smartphones with new designs incorporating metal frame in the Galaxy Alpha series. The same design is included in the Galaxy Note 4 and has seen spiked interest specifically for design alongside features. Other devices like Galaxy A5 and Galaxy A3 will be hitting global markets this quarter to better compete with other propositions that had better compact designs than Samsung has had in the past.
Source: WallStreetJournal
