Samsung's Galaxy S6 and S6 Edge smartphones may have debuted to strong reviews and positive ratings, but a combination of manufacturing delays and consumer apathy appears to have killed most of the phone's forward momentum. Earnings in the smartphone business were down again year-on-year, though the company as a whole was buoyed by increased foundry sales. Samsung's operating profit for the year-to-date fell from 15.68 trillion KRW in 2014 to 12.88 trillion KRW in 2015. That works out to roughly $10.9 billion in operating profit, which is nothing to sneeze at, but it's still a decline that the company is keen to reverse.
The Galaxy S6 and S6 Edge sales have been pulled down by several factors. First, reports indicate that Samsung underestimated demand for the Edge and was slow to put resources behind ramping up Edge production. As a result, customers who wanted to upgrade to the more expensive SKU either bought other devices or settled for the cheaper Edge that doesn't earn as much net profit for the Korean manufacturer. This is reflected in the operating profit figures for Samsung's mobile division.
I've made some changes to this chart to make it easier to follow. Samsung's mobile division (IM)'s sales revenue is outlined in red for the relevant quarters in 2013-2015. The operating profit data is outlined in blue. Operating profit in mobile fell 38% from Q2 2014 to Q2 2015. The fact that mobile operating profit shrank 38% while sales revenue from mobile phones only fell 8% is a sign that more of Samsung's phone sales shifted towards lower-end, cheaper devices. Such devices have lower ASPs and earn Samsung much less money per unit sold, even if the company's gross margin is identical across its product lines.
Yesterday, Samsung announced that it had resolved its manufacturing issues with the Galaxy S6 series and would henceforth begin flexibly adjusting the price of the Galaxy S6 and S6 Edge, which has widely been interpreted as a price cut, possibly to help the phone compete better against other devices, like the LG G4. Less discussed is that this is a self-inflicted wound from start to finish
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