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Phones

Samsung sees slow phone sales too, but has hopes for Galaxy S10 debut

It's not just Apple struggling in today's smartphone market.

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Sarah Tew/CNET

Apple's not the only tech giant being hurt by a slowdown in the smartphone market.

Samsung on Wednesday reported a steep drop in revenue and profits, just as it had warned earlier this month. 

Most of its businesses, from chips to displays, felt the effects of stronger competition and weaker demand in the handset sector. Its smartphone sales declined, memory chips destined for handsets didn't sell as well, and its mobile displays suffered. 

"Unfavorable business and macroeconomic factors led to slower performance in the final quarter," Samsung said in a press release about its earnings.

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The South Korean company's overall revenue dropped 10 percent from the previous year to 59.3 trillion won ($53.4 billion), while its operating profit tumbled 29 percent to 10.8 trillion won ($9.7 billion). The figures were in line with its projection from early January, when Samsung warned it would report a dramatic decline in its fourth-quarter financial results. 

Samsung's smartphone shipments and prices fell in the fourth quarter "in a stagnant but highly competitive market, despite strong seasonal demand." Revenue in its mobile operations dropped 11 percent from the previous year to 22.2 trillion won ($20 billion).

The company's results are the latest confirmation of a slowdown in the smartphone market. It's become harder for handset vendors to make huge changes in their devices and differentiate from one another. Prices for the latest and greatest phones have actually increased at the same time US carriers have gotten rid of subsidies. All of that has meant people are waiting longer to upgrade. 

Apple in early January issued a rare warning -- its first in 16 years -- that it would fall short of its financial projections in the December quarter. Tuesday, it said its sales in the March quarter also would be lower than analysts expected. It pointed to an economic slowdown in China and the country's "rising trade tensions with the United States" as the main culprits. 

For Samsung, demand was seasonally strong in December. Its earnings press release never mentioned China or other factors listed by Apple. Instead, it blamed its weakness on tougher competition and a "sluggish smartphone market overall."

That sluggishness should continue. Samsung expects demand for smartphones and tablets to drop in the first quarter because of a seasonal slowdown. It confirmed it will unveil the Galaxy S10 next month during an event in San Francisco and said "its new flagship model smartphones are expected to prop up sales and business performance in the coming months." 

Overall smartphone shipments are likely to be about the same as the fourth quarter, though, because sales of Samsung's "mass-market models have temporarily declined due to a lineup reorganization." It said the move is necessary to help it "better promptly respond to rapid changing market trends and the needs of target customers."

Ripple effects

Along with smartphone sales themselves slowing, Samsung suffered as companies bought fewer memory chips for smartphones and data centers. Its overall chip business and operations building processors for other companies declined because of "weak seasonality." Sales in the memory business dropped 14 percent from the previous year, while the overall semiconductor business slid 11 percent. 

Even Samsung's display panel business was hurt by smartphones. Revenue in the business declined 18 percent because of "growing competition between mobile display makers."

One bright spot was Samsung's networks business, which has seen strong results selling equipment for upcoming 5G networks and the expansion of 4G LTE networks. 

But the only segment that actually increased revenue from the previous year was the Harman business that Samsung bought in late 2016. Harman makes speakers and other consumer products but also has a big business selling technology to automakers. Its revenue climbed 10 percent year-over-year to 2.55 trillion won ($2.3 billion).

A tough year ahead

Even though Samsung's earnings dropped in the fourth quarter, it managed to report record revenue and profits for the full year. 2019 will be more difficult, however. Samsung's overall earnings should decline, largely because of its memory business, the company said.

For 2019, Samsung expects smartphone demand to be the same as in 2018. But the average selling price of phones should rise "due to a trend toward adopting high-end features such as large screens, higher memory capacity, and multi-cameras," Samsung said. "The environment overall will remain challenging due to the sluggish growth of the global smartphone market and material cost burden."

Samsung plans to boost smartphone sales this year by launching products that are different from those offered by rivals and by getting better at targeting marketing. It will launch foldable and 5G phones this year to woo buyers, and it plans to expand its Bixby digital assistant to more devices and connected services, while improving its AI capabilities. 

"User retention will be increased by strengthening connectivity between devices," Samsung said Wednesday.

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