Samsung reports that its disappointing Q2/14 earnings forecast is the result of the strong Korean currency throughout the quarter as it appreciated against the dollar, euro and most emerging market currencies.
Samsung also witnessed a slowdown in overall smartphone market growth and had to contend with increased competition in the Chinese and some European markets, which led to higher inventories for the medium- and low-end smartphones.
In a statement, Samsung notes that the second quarter is a seasonally weak period for smartphone demand in China, and the company also saw an increase in inventory due to price competition and a weaker demand for 3G products ahead of the expected growth of 4G LTE products in the Chinese market. Weaker demand in the second quarter also led to increased inventory in Europe, where Samsung has an approximate 40 percent market share.
As for tablets, Samsung says sales continue sluggish due to a longer replacement cycle than that of smartphones, which is usually between two to three years. In addition, higher shipments of 5-to-6 inch large screen smartphones (AKA “phablets”) has replaced demand for 7-to-8 inch tablet. That sounds like a dismal outlook for the future of Apple’s iPad mini, although with the iPone 6 expected to have only a 5.5-inch panel, so there’s still quite a screen size spread between it and the 7.9-inch mini.
The Samsung statement also reports that weak demand for smartphones affected the company’s System LSI and the display businesses that provide key components and screen technologies.
The company cautiously expects a more positive outlook in the third quarter with the coming release of its new smartphone lineup, expects stronger smartphone sales, and looks forward to offering innovative wearable devices, smart home appliances, and Internet of Things (IoT) devices.
In a commentary Quartz’s Adam Pasick observes that when the world’s biggest smartphone maker posts ugly financial results, you can be sure the whole industry is feeling the pain, and Samsung’s dismal Q2 earnings bode ill for the entire smartphone industry, which is bad news for Apple, which is poised to release the new iPhone 6 later this year.