Samsung is preparing for challenging year. Demand for its memory chips has been steadily declining, and that's the business division that generates most of its profits. Due to weak demand and falling prices, Samsung now expects its Q4 2022 profit to drop by a staggering 70% compared to the same period last year. In addition, the vice-chairman of the company's board admitted that the situation will remain bleak for the foreseeable future.
Of course, demand for the company's smartphones has also decreased as customers postpone purchases due to the current bleak economic situation. Even rising costs can squeeze the company's margins, leaving Samsung with no choice but to either raise prices or cut profits. However, there is no indication that he plans to drastically increase the price of his mobile devices, which is, on the contrary, good for us customers. After all, it would be counterproductive in the current market, which is already suffering from a drop in demand.
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In these situations, it is of course advisable to have your business appropriately diversified, which Samsung has – from shipbuilding, construction, biotechnology and textiles to consumer electronics, batteries, displays and mobile devices. There is a lot that Samsung Group does that is clearly different from what it does Apple. Paradoxically, he is succeeding.
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Services rule
Over the past few years, hardware innovation has not seemed to be in favor Apple some special priority that they used to have. The company really did the bare minimum to raise the bar as it focused its energies elsewhere. Apple namely, it has gradually built a solid ecosystem with subscription services that form the robust foundation of the company. Its latest earnings for Q4 2022 show that subscription services brought in $19,19 billion in revenue, nearly half of the $42,63 billion in iPhone sales.
Apple Music is also on Androidu
Although Apple does not provide an exact breakdown of operating profit for each business segment, it is quite likely that profit margins are higher for services compared to hardware, simply because input costs are also correspondingly lower. This strong ecosystem ensures that even if people don't upgrade their iPhones every year, they continue to pay the company a certain amount each month to access its music streaming, TV content and gaming services. Add that to iCloud, Fitness+ and, by the way, the entire App Store. So, even if Apple's hardware revenue were to decline, there is a solid background here.
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Economic headwinds will affect device sales across all manufacturers
Samsung Display is the world's leading supplier of display panels, but at the same time it finds itself in a difficult position. Orders slowed as demand for new products stagnated. Similar economic headwinds also hit Samsung's chip division. Moreover, the dependence these divisions have on each other is vulnerable. For example, Samsung's mobile division sources batteries and displays from sister companies, but reduced demand for smartphones means companies like Samsung Display are seeing a drop in demand for its products from Samsung Electronics as well.
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As Samsung pushed the boundaries and demonstrated its technological prowess to the world, Apple he went the other way and created a monster that is now difficult for any of his rivals to match. The decision seems especially right now, as economic headwinds will affect device sales for all manufacturers, including Apple. Samsung's foray into streaming music had short duration and given that his device runs on Androidu, Samsung also does not earn any commissions from apps and in-app purchases made on the Play Store, Galaxy The Store cannot match it.
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Perhaps none of this was in line with Samsung's business priorities at the time, but it certainly made a mistake not to see the potential in the subscription. At the same time, it wasn't like he would Apple he came up with something revolutionary. It's hard to argue with Apple's plans and the extent to which they anticipated being where they are now in X years. Everything is ultimately about generating profits and maximizing shareholder returns. Romanticizing the idea of doing things the way they've always been done is what gets businesses into trouble. This led to the downfall of giants such as Nokia and BlackBerry.
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While such a decline is quite far from reality for Samsung at this point, the company shouldn't forget about it and neither should the fans. So if you're happy with Samsung products, support it by staying loyal to the brand on your next electronics purchase. But quite possibly we will have a new leader in smartphone sales this year. Apple in addition, it will now benefit from the fact that it can already fully supply the market with its iPhone 14 Pro, which has not been available since the introduction of the series.
