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Samsung warns that competitive pressures will decimate smartphones’ profitability

January 25th, 2013 at 8:16 PM
Samsung Warning Smartphone Margins

Remember the good old days when smartphones were seen as the most surefire way to make a quick profit? Well, those days may be gone for good. As The Telegraph notes, Samsung (005930) put out a warning in its earnings guidance on Friday that may signal the end of sky-high smartphone margins. Overall, Samsung projects that “demand for smartphones in developed countries is expected to decelerate, while their emerging counterparts will see their markets escalate with the introduction of more affordable smartphones,” meaning that manufacturers will be competing fiercely with one another to see which one can move the most low-cost smartphones into emerging markets.

What makes this particularly interesting is that there have really only been two companies over the past year — Samsung and Apple (AAPL) — that have managed to make any consistent profits selling smartphones. If competition among vendors keeps intensifying and if vendors see that selling low-cost devices is the only way to create volume, then selling smartphones will become an even more unprofitable venture. Basically, then, the smartphone market is poised to become more like the PC and television set markets, where cutthroat competition benefits consumers but harms manufacturers’ profitability.

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