SamSUNK! Korean giant's electronics biz takes punch to the smartphone profits

Samsung's phone business takes an even nastier dive

Samsung's mobile phone businesses took a nasty tumble in 2014's fourth quarter, with profits at the company's electronics division falling by 27 per cent to 5.35 trillion won ($4.9bn).

Samsung Electronics makes all manner of gadgetry, much used by other electronics companies in their own products. But attention has focussed on the performance of its mobile phone business, now the dominant part of the Electronics Division, in which operating profits dived by over 60 per cent. Profit margins in the phone business now stand at 7.5 per cent after riding high at around 20 points for a few years.

Things aren't all bad for Samsung: it predicted a difficult Q4 due to the arrival of the iPhone 6, says its own Galaxy Note 4 kept it afloat in the high-end phone market and also managed to turn a $1.8bn profit. There aren't many businesses in the world that put up that kind of number, but the company will still be punished by investors.

Samsung says it has a plan to turn the business around. It's already started cost-cutting and says it has experienced “efficient cost management and increase in revenue from improved product mix”. That mix includes more low-end phones it thinks will get it into emerging markets, such as the Tizen-powered model it will sell - and make, to trim costs – in India.

It also looks like Samsung is going to use more of its own components in future products. Qualcomm today revealed it has lost a major customer. Samsung has its own systems-on-a-chip, in the form of the Exynos range. Might it have decided to eat its own dogfood, rather than buy in the engine for future mobes?

Apple certainly likes to bake its own chippery to create a mutually optimised integrated stack of hardware and software, and does rather well by doing so.

Samsung's mobile division Q4'14 profit margin of 7.5% must be driven up with revolutionary flagship phones, not just cost and price cutting

— Canalys (@Canalys) January 29, 2015

Now for the bad news: Samsung has also warned that Q1 is a soft time for mobile sales, so while it is expected to try for a launch – or preview – of new flagship models, seasonal factors mean even that launch may not give its accountants nicer numbers to report in 90 days. And by the time the next quarter comes around, Apple's rumour mill will doubtless have cranked up again, giving high-end buyers a reason to defer purchases … ®