Samsung records soaring profits, feels the pinch from Eurozone

Channel News

Falling euro value could cause problems for smartphone profits

Samsung has again soared to massive profits, though concerns over the euro are causing the Korean giant some major headaches.

In its pre earnings guidance for the second quarter, Samsung has reported increased profit of $5.89 billion, with revenues up to $41.4 billion, as the firm improved on its 2011 results.

The full results will be released later this month, but it appears that Samsung is reaping the benefits of its successes in various parts of its business.   Its smartphones such as Galaxy S2 and S3 devices, for example, have been selling in their millions and the firm is even looking to grow further into software services.

However, Samsung, like many manufacturers and vendors, is facing problems from the continued economic fall out of the eurozone crisis.

Samsung sells a substantial amount of its consumer products – from smartphones to laptops to TVs – into the European market and is feeling the effects of the ongoing economic problems.

Euro fluctuations

Earlier this week officials said that the firm was entering a state of ‘crisis management’ to deal with the effects of the currency fluctuation on its bottom line.   ChannelBiz UK approached Samsung for further information on the implications of the ‘crisis’ management, but was told that the no specific plans to change its operations are in place, though it has been discussing ways to mitigate future risks.

The value of the euro has been dropping as European heads of state struggle to figure out an adequate solution to keep the eurozone from falling apart.   Meanwhile other currencies have seen their position strengthened, and the Korean won has continued to increase its value over the euro.

According to Quocirca analyst Clive Longbottom, the situation can prove tricky – even for a company with such a strong financial position as Samsung.

“For any non-European manufacturer, the uncertainties around the Euro are causing problems, with many IT vendors having cited the euro as a cause for concern,” Longbottom said, speaking with ChannelBiz UK.

Smartphone competition 

Longbottom believes that for Samsung the main problem is in the massively competitive smartphone market.  The level of competition means that increasing prices to shore up revenues is scarcely an option that any vendor can take.

“It could try and squeeze the mobile operators by getting them to pay more for the handsets to put into their package offerings, but that would probably backfire as well as the operators would then just choose other players in the market,” he said.

With the market measured in handsets sold, if it can hold on to its current pricing without making a loss then it would be best to ride out the economic storm, “tread water” and keep selling.

“However, if it is making a loss on each handset, it has a problem,” he said, and would need to be prevented by ‘crisis management’ by the firm’s top brass.

“This is the same problem as many of the other Eastern manufacturers are having, as Eastern currencies ride high against a falling euro,” Longbottom said. “For non-European Western manufacturers, it is not so bad, as the dollar, and other currencies, have not been quite so strong against the euro.”

As for the channel, Longbottom thinks that there is unlikely to be much upheaval, at least in the smartphone space.

Outside of the highly competitive consumer goods market there could be “building pressure” to ramp up prices across Europe to account for the dropping value of the currency and provide more healthy revenue margins.

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