Samsung warns it will have a tough year in 2016
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While a cadre of Apple watchers have predicted doom for the iPhone maker this year, Samsung has actually warned that it faces stronger than predicted competition this year and that it expects 2016 to be a particularly difficult business environment. That's due in large part to fierce competition and reduced business from its number one competitor and supplier: Apple.
According to a report by Se Young Lee for Reuters, Samsung's chief executive Kwon Oh-hyun informed employees in a New Year's announcement that growth would remain low for the company this year as it navigated increased risks in emerging markets.
"Kwon also warned of greater competition in the firm's main businesses," the report noted, "without offering detailed financial forecasts."
The company has already warned that its profits in the December quarter will be lower than its September quarter. It now hopes to brace investors for the impact of its official earnings releases later this month by issuing "earnings guidance" this Friday for the quarter that just ended.
Samsung & Apple
Samsung is Apple's largest rival in smartphones and tablet production, and also one of its closest partners as a leading chip manufacturer and component supplier.
Throughout 2015, Apple's iPhone 6 models eviscerated the sales of Samsung's Galaxy S and Note models, slashing the Korean giant's revenues and causing its profits to implode. While Samsung continues to build the most phones, most of these are low end models that contribute little to overall profitability.
Of the vast numbers of Android phones sold (including Samsung's own Galaxy flagships), only a minority feature fast, high-end 64-bit processors with advanced GPUs and high resolution, high quality displays. Plummeting sales of its high end Galaxy phones has caused Samsung to rely more upon sales of chips, displays and other components rather than making most of its profits from finished goods such as smartphones and tablets.
While Samsung rather clearly reported its predicament in October, a variety of media sources, including Android fan blogs and even CNBC managed to fumble their own reports, incorrectly stating that Galaxy S6 and Note 5 sales were driving growth and lifting profits when the company itself clearly stated that its "profitability declined" and that it faced a "lower ASP due to a sales mix of lower-end smartphones."
This year however, Apple is reportedly pulling its entire A10 generation of chip production from Samsung's fabs and making TSMC its sole supplier.
That move not only erases considerable revenue from Samsung's LSI, but also threatens to leave its state of the art fabs underutilized, either with nothing to build or reconfigured to manufacture less valuable components.
With Samsung in an increasingly desperate condition, Apple faces the weakest significant competition it ever has in the smartphone and tablet markets
That could have a devastating impact on Samsung's ability to invest billions of dollars for continued innovation in chip fabrication, while also funding the development of advanced production of chips in Taiwan, Korea's primary fabrication rival.
With Samsung in an increasingly desperate condition, Apple faces the weakest significant competition it ever has in the smartphone and tablet markets. It also opens the door for Apple to negotiate new component deals with Samsung at less favorable rates, further making Apple 2016 easier while complicating things for Samsung, the company that builds more than half of the world's Android phones.