Samsung Reports First Quarterly Mobile Division Loss as Memory Costs Continue Rising
Higher memory prices, fierce competition in the smartphone business and higher production costs have squeezed Samsung’s profits, with the mobile division apparently posting its first quarterly loss. The development could be a big blow for one of the world’s largest smartphone makers as the company continues to invest heavily in foldable devices and artificial intelligence.
The loss in Samsung’s mobile division indicates that even strong shipments of devices might not be enough to protect earnings. Further, rising component prices and fierce competition in the premium and budget smartphone segments are making it increasingly difficult for makers to maintain healthy margins.
High memory costs squeeze smartphone profits
Memory chips are at the heart of today’s smartphones, allowing us to store information, multitask, take photos, play games and use artificial intelligence.
Higher prices for DRAM and NAND memory are driving up the cost of making a smartphone. Manufacturers will have to decide whether to offset those costs, cut other costs or raise retail prices.
Samsung makes its memory chips through its semiconductor division but its mobile division could still buy components under internal pricing arrangements. While stronger semiconductor sales could lift the company overall, higher market prices may also mean higher costs to build Galaxy smartphones.
Premium Galaxy Sales Face Stiff Competition
Samsung’s flagship Galaxy S and foldables compete against Apple’s iPhone and premium Android phones from Chinese makers.
Consumers can cut the need for expensive smartphones by delaying upgrades or buying older models at a discount. Samsung also spends a lot of money on marketing, trade-in offers, store promotions and carrier partnerships to keep sales flowing.
These incentives can increase the number of shipments but reduce the profit per device.
Margins are lower on low-end phones
Samsung sells millions of its Galaxy A series and other low-end devices worldwide.
Such products are crucial in retaining market share particularly in India, South-east Asia, Latin America and parts of Europe. However the profit margin on a less expensive device is usually lower than on a flagship device.
Competition from Xiaomi, Oppo, Vivo, Honour and others brands might force Samsung to provide better displays, bigger batteries, more storage and longer software support without huge price hikes.
Extra Costs from AI Investment
Samsung places big bet on Galaxy AI as part of smartphone strategy
Powerful processors, cloud infrastructure, software development and licensing agreements are also needed to create and run AI features. Some features can be processed locally on the device and some features need to be processed over the internet.
While Galaxy AI could encourage upgrades, the bottom line will be whether consumers are willing to pay a premium for AI-enabled devices or subscribe to advanced services in the future.
Folding phones are still expensive to make
Foldable phones are a key premium segment for Samsung but making them is more challenging and expensive.
Production costs are rising with flexible displays, advanced hinges, special batteries, and more stringent durability testing. Repairsthat is, warranty claimscan also impact profitability.
Samsung has to keep improving the reliability of foldable phones and lowering prices enough to attract customers beyond techies.
Sources
- Investor Relations Samsung Electronics – Official quarterly earnings, presentations and financial statements.
- Samsung Newsroom – News for the company and for the mobile products.
- Samsung Semiconductor – Information on memory products and market developments.
- (Reuters) – Independent reporting on Samsung’s earnings and smartphone business.
- Bloomberg — Covers technology companies and global component prices.
- Counterpoint Research – Smartphone Shipments, Pricing and Market Share Analysis.
