Samsung can sure ship a lot of smartphones, but don’t confuse units with profits. We all know that Samsung probably makes a ton of money for every Note 3 they sell, but when it comes to something like the Galaxy Young or Galaxy Fame, the picture is a little bit more bleak. So it’s with no surprise then that BloombergBusinessweek is reporting that Samsung has just experienced their first profit decline in nine quarters. What exactly does that mean? In Q4 2013, Samsung “only” made 8.3 trillion Korean won. In the same quarter a year prior, that number was 9.0 trillion Korean won.
Why did this happen? There are three reasons that are often cited.
One, Samsung gave everyone a big fat bonus in 2013 because the company is taking off like a rocket ship. Had there not been a 700 million Korean won bonus, then the company would obviously reach 9.0 trillion won.
Two, when it comes to the high end, people who have $600 to spend are preferring to buy iPhones instead of Galaxy phones. And thanks to the iPhone 5c, people who have $500 can also buy an iPhone now instead of a Galaxy.
Three, cheap phones are becoming really good. My main SIM card has been inside a $180 Motorola Moto G for over two weeks, and except for the terrible camera, I absolutely love this phone. Other people are discovering this too, so they buy the phones that generate less profit for Samsung.
How can Samsung increase their profits? The easy answer is to charge more for their devices, but then they’d face increased competition from Chinese handset makers. The real answer is to find a business that isn’t rapidly becoming commoditized. What exactly is that business? I honestly don’t know.