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Samsung Contrasts Apple, Posts First Profit Drop in 3 Years

Jan. 29, 2015
The annual profit figure marked a dramatic reversal for the company, which is also facing a once-in-a-generation leadership change after several years of stellar growth.

SEOUL - Samsung Electronics (IW 500/12) posted its first drop in annual net profit in three years Thursday and saw resurgent arch-rival Apple (IW 500/4) barge in on its pole position as the world's top smartphone maker.

The South Korean firm, whose key mobile phone operations have struggled in the face of intense competition from cut-price Chinese rivals, also warned that it expected 2015's "business environment... to be as challenging as 2014."

The tech giant said Thursday it recorded a net profit of 23.4 trillion won ($21.45 billion) in 2014, down 23.2 percent from a year ago and the first decline since 2011.

Operating profit fell 11.7 percent to 25 trillion won in the year and sales also tumbled 10 percent to 206 trillion won.

Apple shipped 74.5 million handsets in the fourth quarter of last year with a market share of 19.6 percent -- on a par with Samsung, whose shipments and market share slipped markedly from a year ago.

Samsung had held the global smartphone vendor crown on its own since dethroning Apple in 2011.

Samsung's flagship Galaxy phones have suffered in the high-end market thanks to the popularity of the iPhone 6, while its dominance of the middle- and low-end handset segment has been challenged by Chinese firms such as Huawei, Xiaomi and Lenovo.

New Strategy

Samsung plans to slash the number of smartphone models it issues in 2015, while boosting production of remaining models that can be sold more cheaply to compete with Chinese rivals.

Streamlining the product mix should increase sales in the current quarter, Samsung's head of investor relations Robert Yi predicted, while nevertheless warning of a tough year ahead.

"When we look at 2015 as a whole, we fully expect the business environment... to be as challenging as 2014," Yi said.

Handset sales will be driven by growth in emerging markets including China and India, said Park Jin-Young, vice president of Samsung's mobile unit.

Sales of tablet computers are expected to grow, largely boosted by sales of mid-priced and low-end products, Park said.

A more fundamental restructuring is assumed to be in the pipeline, with control of the family-run conglomerate's main business expected to pass from ailing patriarch Lee Kun-Hee to only son Lee Jae-Yong.

Needing cash to pay for what will be a massive inheritance tax bill, Lee and his siblings are expected to pare down and simplify the byzantine system of cross-holdings that link the many branches of the Samsung empire.

The anticipated reforms have helped keep Samsung on the "buy" list of many analysts, despite the recent profit downturn.

Thursday's dividend increase will help appease disgruntled shareholders who watched Samsung's stock price take a battering last year.

The company is currently in the middle of a $2.0 billion share buyback process announced in November.

With a market capitalization of about $185 billion, Samsung accounts for nearly 17% of the weighting on South Korea's benchmark Kospi composite index.

Copyright Agence France-Presse, 2015

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