Samsung Electronics reported that earnings in the last quarter of 2013 were lower than in the previous three-month period as well as lower than the same period a year ago. The company released a prediction that operating income would total about 8.3 trillion won ($7.8 billion) for the final three months of the year. This was down from 10.2 trillion won in the third quarter of this year and 8.84 trillion won in operating income in the fourth quarter of 2012. Revenue is expected to come in roughly even with the third quarter at 59 trillion won.
Even though the drop was expected, the earnings forecast still fell short of analysts’ estimates. According to analysts, the company has been facing tighter profit margins on smartphones and higher employee bonus costs during the fourth quarter. The report increased investors’ concerns about the industry and the competitive pressures shaping it.
The company released only a bare-bones forecast in advance of a full report to come sometime later in the month. The report provided no reasons for the expected decline in operating income. However, analysts believe that softness in the smartphone market, which accounts for more than half of Samsung’s earnings, was probably a big reason for the decline in earnings. Samsung is currently the world’s biggest maker of smartphones.
Samsung is facing unanticipated challenges in the smartphone market. Samsung controls more than one-third of the global smartphone market, but Apple, one of its closest competitors, recently added several leading network operators to its roster of iPhone vendors, including China Mobile and NTT DoCoMo of Japan. Low-cost manufacturers in China are also competing with Samsung for market share.
In the fourth quarter, Samsung’s costs also increased partly because of a special bonus to some employees to mark the 20th anniversary of the company’s new management initiative. The initiative was started in 1993 by Lee Kun-hee, the Samsung group patriarch, as a drive to raise the quality of the company’s products. When launching the initiative, he told his managers to “change everything except your wife and children.”
