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Why Samsung’s profits fell for the 7th consecutive quarter

Between Apple and Xiaomi, the world’a largest smartphone manufacturer is feeling the squeeze.

Samsung missed again.

On Tuesday Korea’s largest manufacturer forecast operating profits of 6.9 trillion won ($6.1 billion), down 4% from the same quarter last year and well below the 7.23 trillion analysts were expecting.

Sales declined 8% to 48 trillion won, short of a 52.8 trillion won forecast.

It was Samsung’s seventh consecutive decline. And although the company didn’t break down the results by division, analysts were quick to put the blame on Samsung’s flagship smartphone series, the Galaxy S6.

Part of the problem was logistical. Samsung released two versions of the device, one with a flat screen and one with a screen that curved on the edges. The regular S6 didn’t sell as well as expected, and the S6 Edge proved hard to manufacture. Samsung couldn’t keep up with demand.

“The failure to manage the initial shipment for the Galaxy S6 series is the primary reason” for disappointing sales, Lee Ka-keun, an analyst at KB Securities, told the AP. Samsung is bringing on a third plant to boost production.

There’s a bigger problem, however, that is not so easily solved.

Samsung competes in two different handset markets: Low-end and high-end.

On the low end, it’s getting undercut by a gang of Chinese manufacturers—led by Xiaomi—that can thrive on profit margins even thinner than Samsung’s.

On the high end, where it competes with the iPhone, Samsung lost a key marketing advantage when Apple introduced a pair of iPhones with screens as big as Samsung’s. Sales of the iPhone 6 and 6 Plus are holding up better than expected, winning back some of the market share Apple lost to earlier Galaxy models.

Samsung Securities last month lowered S6 shipment estimate to 45 million units this year from 50 million previously. Full results for the second quarter are due later this month.


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