Samsung has gone on record saying that it would be significantly reducing the number of smartphone models it will be offering in 2015. The South Korean phone maker stated that the decision has been made in order to minimize costs and combat decreasing profits.
As remarked by Robert Yi, Head of Investor Relations in Samsung, during a recent New York City presentation, the company is planning to lower the number of smartphone models by 25 percent to 30 percent. As to the exact number of models affected, Samsung did not provide any information.
In light of Samsung's declining profits during the last quarter, the decision to streamline its smartphone production makes a lot of sense. The move will also help put the company in a position where they can better compete with cheaper smartphone offerings, especially those coming from Chinese phone makers like Huawei and Xiaomo Inc.
Just last month, Samsung disclosed that it experienced a 49 percent decrease in its net profit for the third quarter. That is a significant dip indeed, and definitely one that the company's executives would not want to see repeated.
Reducing the number of smartphone models should ease some of the overall manufacturing costs. Also, fewer models would allow Samsung to manage its inventory and supply chains better, and more importantly, allow the company to focus more on the products that are actually selling.
This may be crucial for the company, especially now that the demand for its Galaxy smartphones is beginning to wane. The numbers certainly suggest so. For 10 consecutive quarters, Samsung was able to maintain at least 15 percent operating profit margins for its smartphone segment. But during the third quarter that ended in September this year, the company only managed to achieve an operating profit margin of just 7 percent. This is Samsung's lowest margin since 2008, which was around the time the company was about to introduce the first of its Galaxy smartphones.
Samsung clearly needs to return to double digit percentages in its margins in order to get back in the game. Of course, that would be easier than done, considering the threat posed by low-cost Chinese competitors. Still, the streamlining of smartphone production should help. And if the South Korean company can find a way to achieve robust sales out of a solid (albeit limited) line of smartphone products next year, they should be on track for a turnaround.
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