Apple and Samsung: why the profits of these two mobile giants are falling

Apple and Samsung: why the profits of these two mobile giants are falling

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Apple and Samsung started the new year with bad news.

The two leading companies in the world of mobile telephony, announced in less than a week that their earnings for the last quarter of 2018 were much lower than they expected.

Samsung said in a statement on Tuesday night that it estimates an operating profit of US $ 9.67 billion for the October to December period of last year, down 29% from the same period in 2017.

And these weak profits of the world’s largest smartphone maker are added to the concerns of investors for Apple (third on the list after the Chinese Huawei) that last week announced an unusual fall in its profits also the last quarter of 2018.

Tim Cook.
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Image caption Apple CEO Tim Cook pointed to China as his main source of displeasure.

Apple executive director, Time Cook, said last Wednesday that the company estimates the income of around US $ 84,000 million for the last three months of last year, below a forecast of at least US $ 89,000 million.

This announcement not only alerted investors but the stock market in general.

That same day, Apple shares fell 10% , to a value of US $ 142.19. And in just four trading days of 2019, the title value of the manzanita company has already lost US $ 10.

As in other consumer products companies, the end of the year holiday season tends to drive the last of the year as the strongest quarter.

But these earnings forecasts from Apple (the final results will be published in early February) would mark a fall of almost 5% over the same period last year and represent the first quarterly year-on-year decline for the company since 2016.

And the situation in the house of Apple’s big rival in the cell phone market, Samsung, does not seem to be great for celebrations either.

The South Korean company reported a sales drop of 10% compared to the last quarter of 2017.

Chinese economy

A man holds a Samsung phone.
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Image caption Samsung expects its earnings to remain moderate in 2019, but analysts are pessimistic.

 

What are the main reasons why the profits of Apple and Samsung fell?

Both Apple and Samsung do not usually give explanations about their earnings forecasts, but this time they broke that habit.

Samsung decided to issue a statement giving some details about the fourth quarter earnings estimates to “ease the confusion” among investors , because the forecast was well below market forecasts.

“We expect earnings to remain moderate in the first quarter of 2019 due to the difficult conditions for the memory chip business,” he said.

Analysts polled by Reuters expect instead that Samsung’s earnings will continue to fall in 2019 as the slowdown in the Chinese economy erodes demand for its chips and phones.

Samsung is one of the leaders in the global smart phone market, but faces growing competition from Chinese rivals such as Huawei.

A woman holds an iPhone.
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Image caption Apple also suffers from the fall of customers in other countries.

 

Apple’s problems also come from China. In a letter to investors, the director of Apple pointed to the Asian giant as the source of their difficulties. In that country, it generates around 20% of its income.

“Although we anticipate some challenges in key emerging markets, we did not know how to predict the magnitude of the economic slowdown, especially in China, ” he said.

This is the first time in 15 years that the iPhone manufacturer analyzed its financial results in a letter to its investors.

Commercial war and sales

In addition to the problems with the slowdown in the economy, Apple said commercial tensions between the United States and China had damaged consumer confidence.

“As the climate of increasing uncertainty weighed on the financial markets, the effects seemed to reach consumers as well, and traffic to our retail stores and our channel partners in China declined as the quarter progressed,” Cook wrote in the letter.

Mockup with two paper boats and the flags of the United States and China.
Copyright of the GETTY IMAGES image

Finally, the CEO of Apple also recognized that fewer customers than expected from developed countries chose to update their iPhones.

This confirms that iPhones sales are falling. And some analysts say that Apple’s new fall reflects certain problems that the technology company has been dragging for some time.

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Rava is an online news portal providing recent news, editorials, opinions and advice on day to day happenings in Pakistan.

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