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January 24, 2014

First Time in Two Years, Samsung Profits Drop

If we look at all of the year end reports, we see that Samsung is selling more devices than just about anyone else. So it comes as a bit of a surprise to say that for the first time in two years, Samsung has said that its fourth quarter profits declined as compared to third quarter figures.

This is the type of thing that doesn’t make sense to me. The beginning of the fourth quarter is when the Galaxy Note 3 went on sale. Since that time, Samsung has sold over 10 million units. People seem to like it and are buying the tablet.

So then, why is it that fourth quarter profits dipped? To keep things in perceptive, the profits dropped as compared to third quarter results. If we check the year-to-year figures, we see that Samsung’s fourth quarter 2013 profits were four percent better than the same time in 2012.

A breakdown shows that Samsung’s net profit for the fourth quarter was $6.8 billion. This represents an 11 percent drop from the previous quarter. Something to consider is that there were some increased marketing costs along with one-time expenses such as bonuses that cut into profits.  Another factor is that their form of currency, the won, was stronger at the end of the year.

This also has proven to have taken a cut out of Samsung’s profit. Samsung said sales of its smartphones dipped slightly in the fourth quarter. Unfortunately, the company no longer discloses hard sales figures for its devices, so we don’t know exact figures since it didn't say how many it sold.

Analyst estimates place sales between 85 and 87 million. Sales of Samsung tablets doubled compared to the same period last year. Samsung's decline in profit had been reported by the company earlier in the month.

Samsung also forecast decreased demand for smartphones and tablets in the current quarter, in part because of sales seasonality. Looking ahead, Ben Bajarin, principal industry at Creative Strategies, Inc., said "2014 could be a tough year for Samsung Mobile, particularly in the low end in emerging markets.

Thanks to a recent agreement between Apple and China Mobile, the latest iPhones has been put on China Mobile’s shelf. This means that there is now a greater Apple presence in a region that was dominated by Samsung. This could also be a factor.

Because of the seasonal drop in sales, mentioned above, Samsung is predicting that this first quarter is also going to be slow. There are interesting things on the way that include an upgrade to the Galaxy S4 and the more dramatic changes that can be expected with the Galaxy S5. However, these tablets are a little ways off in the future.

Samsung is also the largest maker of semiconductor chips and TVs. Demand for chips and TVs is expected to increase.

Edited by Cassandra Tucker

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