Samsung Plans to Cut Number of Smartphone Models

Samsung Electronics Co. said it would reduce the number of smartphone models it offers next year, part of a move to cut costs to combat declining profit.

The South Korean technology major said it would cut the number of models by about 25% to 30%, Robert Yi, head of investor relations, said during a presentation in New York. His remarks were confirmed by a company spokesman Tuesday.

Samsung didn’t disclose the exact number of models that would be affected by the reduction.

The decision to streamline its large smartphone portfolio came as the company seeks to cut costs to better compete with cheaper models, mainly from Chinese smartphone makers such as Xiaomi Inc.

In October, Samsung reported a 49% drop in its third-quarter net profit. Executives have vowed to make its operations more cost efficient.

Samsung will “increase the number of components shared across mid- to low-end models, so that we can further leverage economies of scale,” an executive at the company’s mobile division said during an earnings call last month.

Having fewer models will allow Samsung to better manage its inventory and supply chains, analysts say, at a time when demand for its Galaxy smartphones is waning.

Robert Cihra, an analyst for Wall Street firm Evercore ISI who attended the session, praised the move, saying it was “about time” that the company trimmed the number of smartphone models that it markets to focus more on lowering costs.

“It is likely to help Samsung reduce costs, which is imperative to stabilizing their margins,” Mr. Cihra said.

After maintaining smartphone operating-profit margins above 15% for 10 consecutive quarters, Samsung’s margins from its mobile and information technology business were squeezed to just 7% in the third quarter ended September–the lowest level since the end of 2008, before it launched its first Galaxy smartphone. Acknowledging the slide in margins, Samsung executives said during an earnings call last month that its new goal is to maintain a sustainable double-digit percentage margin starting in the new year. They reiterated that pledge during this week’s investor day meeting.

In a note to clients published shortly after the end of the investor day, Mr. Cihra argued that even that goal may be too optimistic, given pressure from low-cost Chinese handset makers, including Xiaomi and Huawei Technologies Co. Mr. Cihra estimates that Samsung’s margins are likely to remain below 10% next year.

Source: MarketWatch