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

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.