Samsung reports first annual profit decline in three years

The South Korean firm has announced its future commitment to the Internet of Things as its smartphone business struggles

A man walks at the Samsung Electronics' headquarters in Seoul on 7 January, 2015 (Reuters)

Samsung Electronics has today announced its first annual profit decline in three years – but analysts expect sales to stabilise.

The smartphone manufacturer lost market share for three consecutive quarters up to July-September, and analysts say the trend likely continued in the October-December period thanks to competition from Apple’s new iPhones and cheaper Chinese rivals like Xiaomi.

For the fourth quarter of last year, Samsung said operating profit was about 5.2 trillion won ($4.7 billion), down 37 per cent from a year earlier.

However, the result was still higher than analyst expectations of 4.9 trillion won according to FactSet, a financial data provider. It is thought Samsung may have at last halted the fall in its quarterly earnings, thanks to healthy memory chip demand and improvements in the mobile business on the back of new mid-to-low tier smartphones.

The South Korean firm’s 2014 operating profit is expected to be about 24.9 trillion won ($22.6 billion), down 32 per cent from 2013, based on preliminary figures. It marks a rebound from the third-quarter's 4.1 trillion won profit which was the firm's lowest quarterly result in more than three years.

Samsung will release its full financial results including net profit and a breakdown of business divisions later this month.

Analysts said Samsung's smartphone business, which contributed two-thirds of its profit in the last two years, continued to struggle but improvements in its semiconductor division helped the company rebound from the third quarter.

"It's time to see Samsung as a semiconductor company," said Lee Sei-cheol, an analyst at Woori Investment & Securities.

Quarterly sales dropped 12 per cent to 52 trillion won, in line with the expectations of analysts.

Samsung's smartphone business is unlikely to repeat the growth momentum it had in the past, according to analysts. Growth instead will come from demand for memory chips but that gain will not be enough to stop Samsung’s earnings from dropping again this year.

Speaking at CES 2015 in Las Vegas this week, President and chief executive of Samsung Electronics, Boo-Keun Yoon, said the company is working hard to make the Internet of Things (IoT) a reality.

He announced a timetable for making Samsung technology IoT-enabled. By 2017, all Samsung televisions will be IoT devices, and in five years all Samsung hardware will be IoT-ready.

Mr Yoonalso emphasised the importance of developers in building IoT and announced that Samsung will invest more than $100 million in its developer community in 2015.

Additional reporting by agencies