Samsung is trying to recover from a June 7 thrashing when the company lost $12 billion in market value due to brokerage downgrades.
The slowing sales of the firm’s Galaxy S4 smartphone fueled pessimism and a 6% one-day slide. Ironically, just two days earlier, Samsung won a patent battle over Apple Inc. (NASDAQ:AAPL)’s use of the South Korean firm’s 3G technology. That led to a ban of the import of Apple Inc. (NASDAQ:AAPL) products that use 3G wireless technology, including several Apple Inc. (NASDAQ:AAPL) gadgets capable of concurrently transmitting multiple services.
Samsung’s fuzzy critical reception
Logically, that would indicate a surge in sales of Samsung products in the United States, but it didn’t stop the downgrades and stock plunge on June 7. The thumbs down came after the release of two stripped versions of the Galaxy S4 smartphone. The mini phone targets a mid-tier market, which would help cater to those who can’t afford the full versions, including many consumers in developing countries — a market the smartphone giants are exploring.
That’s why it’s better to take a look at a company’s financial stability, market trends and company news. Samsung has the highest return on equity in the audio and video equipment industry, but it isn’t receiving a lot of high fives. Investors don’t expect the company to grow by much, as its PE ratio is 8.2 compared to the industry average of 28. But, that represents a major buying opportunity. If you don’t want to take my word for it, let’s read what those analysts are saying.
What the analysts are saying
Many analysts have said the increased production means Samsung is trading profits for a higher volume of sales. Also, sales of the company’s higher-end S4 have slowed since it’s release in April.
Kim Young-chan, analyst at Shinhan Investment Corp., told the Globe and Mail that sales of the higher-end S4 are not meeting expectations. But, the “low- to mid-end handsets” are selling around the world — apparently not fast enough to discount downgrading. Worldwide distribution would be an indication that Samsung may have found a way to produce a cheaper smartphone that could spread like wildfire through developing nations. If that is the case, then I wouldn’t take the downgrades too much to heart, and I would look for a swift rebound in the stock’s price. And, if the Mini S4 does catch on internationally, huge profits could be made.
Global demand for an affordable smartphone
Globalization has played a major role in creating more disposable income in various nations as the middle class continues to grow. The smartphone company able to dominate this new market could be the first to reach the trillion-dollar-value mark, which might not be as far off as we may think. Apple Inc. (NASDAQ:AAPL) is also making an attempt at profiting from the developing world by crafting an iPhone that is cheaper to manufacture and can be sold at a reduced price. In fact, Samsung’s Mini S4 release put the pressure on Apple Inc. (NASDAQ:AAPL) to come out with an affordable smartphone. But, all the parts have to be in place for the bargain iPhone to generate a profit.
Apple Inc. (NASDAQ:AAPL) announced on June 13 its planned entry into the affordable smartphone market. The announcement came not long after Sprint Nextel Corporation (NYSE:S) reported it would sell a phone for $99, which is around the price-point that the developing world could afford. Apple didn’t announce the price it would charge for the cheaper version of the iPhone, but with the marketing finesse that the company has shown over the years, it may be the best company to position itself to profit in the emerging market.