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Samsung admits 'weak demand' for its phones is damaging profits

Sharif Sakr
07.08.14
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Samsung's marketing budget has always been vast, but in the last quarter it was far larger than even the manufacturer itself would have liked. The company admits that it's been forced to spend extra money on promotions for older and lower-end devices that have been filling up its warehouses due to "weak demand." This dip in trade, combined with the extra spend on publicity, is causing the company's recent, gradual profit decline to quicken: it now expects to earn around 24 percent less this quarter than it did a year ago, with underlying sales down by an estimated 8-11 percent.

Samsung claims the main underlying causes are stiffer competition in Europe, especially in the low- and mid-range parts of the market (presumably from the likes of Motorola), as well as a tougher climate in China, where many buyers are choosing to hold out for 4G phones rather than picking up current 3G models. The manufacturer also says that its 7- and 8-inch tablet sales, which have already been suffering from a slow upgrade cycle, are further being cannibalized by sales of 5- and 6-inch phablets.

On the other hand, Samsung claims that one of the biggest sources of its financial pain has nothing to do with smartphones or market saturation, but instead results from currency fluctuations: the won has been steadily increasing in value against the dollar, which isn't good news for any Korean exporter. The company "cautiously" expects a "more positive outlook" later in the year, thanks to the release of a new smartphone lineup (likely a reference to the Galaxy Note 4 and other devices coming during the fall), while also hoping that its marketing spend will fall back to normal levels.

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