Electronics giant Samsung is expecting a drop in sales and revenue in the first quarter of 2019.
The Korean-based company's earnings guidance for 1Q 2019 shows the company is heading for its lowest quarterly profit in more than two years.
According to the announcement, Samsung expects to report first quarter sales of about 52 trillion Korean won ($45.8 billion), 14% lower than last year's first quarter revenue of 60.6 trillion won ($53.3 billion).
The company will provide its full results later this month.
Earlier this year, Samsung's rival Apple posted quarterly revenue of $84.3 billion, a decline of 5% from the year-ago quarter, and quarterly earnings per diluted share of $4.18, up 7.5%.
Samsung unveiled its flagship Galaxy S10 phones in February and the phones have now gone on sale around the world.
The electronics company is facing competition from different fronts, including the smartphone and chip markets, which it leads.
Earlier this year, market analyst firm IDC reported the smartphone market is in a mess, as vendors shipped a total of 375.4 million units during the fourth quarter of 2018, down 4.9% year-over-year and the fifth consecutive quarter of decline.
According to IDC, Samsung saw smartphone volumes decline 5.5% in 4Q18 with total shipments of 70.4 million units.
The market analyst firm points out that while this was enough to maintain the top position for the quarter, its share once again fell below 20% to 18.7%, just a few points above Apple and Huawei.
Both Samsung and Apple have seen increasingly stiff competition from domestic manufacturers in China, with companies like Huawei and Xiaomi making cheaper and more competitive products.
Breakthrough features
Siyathemba Magobiane, senior consultant at Frost & Sullivan, comments that demand in the global smartphone market is weak.
"Apple has also experienced similar results. Blame has been directed at the lack of smartphone breakthrough features or specs; as a consequence, a slowdown of consumers upgrading from their existing devices to new ones.
"Additionally, global political and economic uncertainties brought by the US-China trade war and a deceleration of the global economy contributed to a slowdown in demand," says Magobiane.
He points out that although Samsung is still the market leader, a reduction in revenue and production in 2018 saw Huawei threaten the throne, as it surpassed Apple in terms of global market share.
"I see Huawei dethroning Samsung in the short- to medium-term if they continue their aggressive growth, especially if they continue to dominate with strong performances in the lower end, emerging overseas markets and parts of Europe.
"Huawei is expected to expand even more into these regions in 2019. Analysts are of the view that Samsung will find it hard to realise aggressive growth to compete with Huawei, as they have already had a complete deployment in these low, middle and high-end segments," he says.
Although the global smartphone market is slowing, the South African market enjoyed solid growth in 2018, with unit sales rising 7.2% year-on-year to around 13.5 million and value growing 13.2% to just under R35 billion, according to statistics from GfK.
On the chip front, sales fell sharply in January on both a sequential and annual basis, according to the World Semiconductor Trade Statistics organisation. It points out that this was the first year-to-year decline in chip sales for any month since July 2016.
Samsung supplies memory chips and screens for its own smartphones and Apple, and server chips for cloud companies such as Amazon.
Perfect storm
Arthur Goldstuck, MD of World Wide Worx, points out that Samsung is caught in a perfect storm of declining demand, declining chip prices, and increasingly aggressive and effective competition.
He points out that in its smartphone division, the first quarter still represented mostly sales of the S9 range, which fell short of expectations and was overshadowed by Huawei's P20.
"However, while we tend to associate Samsung primarily with the smartphone business, it is one of the world's biggest chipmakers, and the drop in both price and demand for chips would have a major impact."
Nonetheless, Goldstuck says Samsung should still remain number one for the next few quarters, having had about 21% market share last year to Huawei's 16%.
"That's a massive gap in terms of unit sales: around 71 million versus 54 million. However, it takes one big winner from Huawei and one big underperformer from Samsung to turn the tables. The Huawei P30 could well be the phone that tips the balance, but Samsung's S10 range and upcoming Note 10 will represent formidable defence of its status."
Goldstuck says Samsung is the most popular smartphone brand in South Africa, with up to 50% market share at the top end, and substantial share in the mid-range.
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