Samsung To Cut Back on Smartphone Production
Samsung, maker of the Galaxy S5 and Note 4, is expected to cut back on its production of smartphones starting next year.
According to an article published by the Wall Street Journal, the South Korean electronics company will reduce the number of smartphone models it produces in 2015 by 25-30%. Samsung is known for producing a multiple variants of its devices in an effort to appeal to a broader audience. The Galaxy S5, for instance, is available in several variants such as the Galaxy Alpha, Galaxy S5 Active and Galaxy S5 Mini.
But Samsung appears to be taking a different approach, focusing on its core smartphones instead of branching out into so many variants. So, why is Samsung making such a pivotal change to its business strategy? While the Galaxy S5 continues to top the charts as being one of the best-selling smartphones, the company’s earnings have slipped as of late. Samsung’s latest earrings report reveal a 74% decline in earrings from the previous year, making it the lowest mark since 2011. Smartphone competition is expected to heat up in 2015, which is also likely to play a role in Samsung’s decision to cut back on producing so many different devices.
Many people view Samsung as a highly profitable company that pioneers the modern-day smartphone industry. There’s no denying the fact that it’s an influential company, but they aren’t generating the numbers on paper. The Wall Street Journal reports that Samsung’s current profit margin is just 7%, which is less than half the company’s profit margins in 2013. For each Samsung device purchased, the company only makes a small 7% profit. That’s pretty shocking given it’s notoriety in the mobile industry. Samsung is known for spending a significant amount of cash on advertising and branding, but a 7% profit margin is still almost unheard of by smartphone makers.
Does this mean Samsung is going to close up shop and stop producing smartphones? Not by a long shot, but you can expect to see some changes to its business model next year, one of which is fewer variants. Instead of producing half a dozen different types of its flagship smartphone, the Galaxy series, it will likely focus on just one or two. So if you want a Galaxy variant, you should probably grab one now, because they might be gone starting next year.
Do you think this is a smart business move for Samsung? Let us know in the comments section below!
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