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Apple Inc. (AAPL) and SAMSUNG ELECT LTD(F) (SSNLF)’s Growth Slows Down

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Samsung and Apple, two of the largest technology brands, released quarterly earnings last week. Samsung posted record profits for the quarter despite a 3.5% slowdown in its mobile division. Apple beat Wall Street earnings estimates as iPhone sales hit record numbers, but a downward trend in iPhone sales growth alarms some investors.

Analysts believe Apple Inc. (NASDAQ:AAPL) should manufacture a low-cost smartphone targeted for price sensitive consumers to propel the company’s profits and market share in developing markets.

Apple Earnings

Apple Inc. (NASDAQ:AAPL) impressed with its strong iPhone sales of 31.2 million units that beat Wall Street expectations, but the Cupertino-based company showed declining profits and flat revenue growth in its latest third quarter earnings results. Net profit came in at $6.9 billion, or $7.47 per share, compared to a net profit of $8.8 billion, or $9.32 per share, a year ago. Revenue rose only 1% to $35.3 billion. Sharp declines in year-over-year (YoY) profit and revenue growth reflects the lack of new products this year and stiff competition from Samsung, Nokia and Chinese brands.

Source: Bloomberg

Gross margin trended lower to 36.9%, down from 42.8% in the year-ago quarter. Apple Inc. (NASDAQ:AAPL)’s lack of gross margin expansion resulted from higher shipments of its older, lower-priced iPhone 4 models to first-time buyers, which underwent price cutting to meet consumer demand in developing markets such as China and India. Apple Inc. (NASDAQ:AAPL) may need to enter that low-end market to revive growth, although a lower-priced iPhone may cannibalize sales of its high-margin phones and further dampen gross margins.

Source: Bloomberg

A report from China Labor Watch released earlier this week reveals that Apple Inc. (NASDAQ:AAPL) does have a cheaper iPhone in production.

“At this moment, in Shanghai, China, workers in Apple Inc. (NASDAQ:AAPL)’s supplier factory Pegatron are monotonously working long overtime hours to turn out a scaled-back, less expensive version of the iPhone,” the report unveils.

Analysts expect a budget iPhone to release sometime this fall or early 2014 when the company rolls out new products.

Samsung’s Mobile Division Dips

SAMSUNG ELECT LTD(F) (NASDAQOTH:SSNLF) posted second quarter earnings that missed consensus estimates. For the three months ended June 30, net income came in at a record ₩7.7 trillion (US $6.9 billion) from ₩5.19 trillion a year ago. Revenue soared 21% YoY to ₩57.46 trillion (US $51 billion). Although the company was able to meet its quarterly guidance issued earlier this month, a sell-off ensued after the announcement as analysts expected a net income of ₩7.96 trillion on revenue of ₩57.81 trillion.

Operating profit climbed to ₩9.53 trillion (US $8.5 billion), up 47.5% YoY. Operating profit from SAMSUNG ELECT LTD(F) (NASDAQOTH:SSNLF)’s mobile division, the company’s biggest earnings generator, rose 52% to ₩6.28 trillion (US $5.6 billion) from a year ago, but dropped 3.5% from the previous quarter.

SAMSUNG ELECT LTD(F) (NASDAQOTH:SSNLF)’s mobile division, which accounts for two-thirds of its total revenue, outlines the company’s smartphones, tablets, PCs and network equipment. SAMSUNG ELECT LTD(F) (NASDAQOTH:SSNLF) does not provide a breakdown of sales for each segment, but its earnings report reveals that its mobile business represented ₩34.58 trillion (US $30.7 billion) of its total sales for the quarter. These results compare to ₩31.77 trillion last quarter and ₩22.43 trillion in the year-ago quarter.

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