Samsung mobile segment profitability is falling

Mobile segment profitability is falling

Samsung is currently generating exceptional profits thanks to turmoil in the memory market, yet at the same time it has declared an emergency situation, according to FN News.

Emergency measures across Device Experience (DX)

The report refers to Samsung Electronics as a whole, although the internal pressure is not evenly spread across every division. The emergency status relates specifically to the smartphone business. Even so, it is said that the entire Device Experience (DX) organisation - with the exception of the Semiconductor (DS) division - has moved to an emergency management mode.

What is driving the drop in profitability

The core issue is a sharp decline in profitability as component costs rise. The biggest factor is, unsurprisingly, memory chips. In simple terms, Samsung is now making noticeably less money on each smartphone than it did previously.

It is worth noting that Samsung manufactures memory itself, but that production sits in a different division, which can - at least in part - decide independently who to sell to and on what terms. Selling memory to Samsung’s own mobile arm is less profitable than supplying external customers.

Cost cuts and tighter travel rules at Samsung

Samsung is also concerned about a rapid increase in oil prices and worsening logistics problems amid the conflict in the Middle East. The company currently expects the mobile division’s operating profit for the current year to fall by more than 60%.

As part of the emergency management actions, DX has instructed a 30% reduction in spending across all business units. The rules for staff business travel flights have also been revised: previously, all managers below vice-president level were given business-class seats for flights lasting under 10 hours, but economy class will now be used instead.