Samsung Electronics revealed today that it forecasts weak quarterly earnings, resulting in what would be its worst results in two years. This has cast doubt on the smartphone producer's ability to compete with cheaper Chinese rivals.
The South Korean company has suffered at the hands of the recent slowdown in growth of the smartphone market. This, combined with a strengthening of the Korean currency, has caused it to predict a 25 per cent drop in second quarter operating profit.
This would be the biggest decline in over three years since the first quarter of 2011, and would mark the third consecutive fall in quarterly profits. The resulting profit would amount to 7.2trillion won (£4.2bn), down from 9.2trillion won the year before.
The firm said that it had "witnessed a slowdown in the overall smartphone market growth and saw increased competition in the Chinese and some European markets" during the period.
In a statement, Samsung said second-quarter earnings would be hit by slower global smartphone market growth, competition in China, inventory buildup in Europe and the strength of the won. The currency appreciated by around nine per cent against the dollar during the second quarter.
"The earnings deliver a harsh reality check to Samsung that it is not Apple, but Samsung. Its strategy of selling phones at expensive prices will not work any more, as Chinese rivals also offer good enough phones at much cheaper prices," Lee Seung-woo, a technology analyst at IBK Securities, said.
Some analysts believe that Samsung may have to slash prices for mid-to-low tier devices so that it can compete with Chinese rivals such as Huawei Technologies and Lenovo Group.