Apple 2.0

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Apple blamed for Samsung's first profit decline in two years

January 26, 2014: 10:32 AM ET

Slowing Galaxy S4 sales helped push operating profits down 6% year over year.

iPhone sales cut into the Galaxy S4's.

iPhone sales are believed to  have cut into the Galaxy S4's.

FORTUNE -- Samsung had warned investors two weeks ago that there was bad news coming on the smartphone front. But the timing of Friday's quarterly earnings call -- one business day before Apple (AAPL) is scheduled to release its Christmas iPhone sales numbers -- could have been better.

Samsung no longer provides unit sales data, but Daewoo Securities estimates that the world's largest mobile phone manufacturer shipped 9 million Galaxy S4s in Q4, down from 17 million in Q3. Samsung's total mobile phone shipments were 91 million, according to KB Investment, up 4% from 87.3 million the previous quarter.

Apple on Monday is expected to report quarterly sales of 50 million to 60 million high-margin iPhones.

Most of the handsets Samsung shipped, by contrast, were low-end phones fighting price wars with Chinese manufacturers. That, along with the strengthening Korean won (which raised export prices), contributed to Samsung's first quarterly profit decline since September 2011. Operating profits for the December quarter were 8.3 trillion won ($7.8 billion), down 6% year over year.

Analysts reached by Bloomberg attributed the decline, in part, to competition from Apple's new iPhones.

 "A flood of Asian rivals from China and India, such as Lenovo, as well as a product refresh from Apple, are pressuring Samsung," said Strategy Analytics' Neil Mawston. "Samsung's two major challenges for 2014 are to maintain its mobile-phone leadership in China and the U.S., while simultaneously growing its tablet business quickly enough to knock Apple iPad from its perch."

"It's critical that Samsung comes up with new designs in order to protect its market share from Apple in the high-end segment," said Daiwa Securities' Jae H. Lee. "No rapid earnings growth is expected this year as margins at its handset business will remain pressured."

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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