Analysts are blaming disappointing sales of Samsung's Galaxy S4 flagship phone and waning demand for high-end handsets for the company missing second quarter profit targets. Samsung said it expected an operating profit of $8.3 billion, while analysts were expecting $8.8 billion. As a result, Samsung's market value fell by a whopping $6.5 million.
While most companies would kill for those kinds of "disappointing numbers," industry watchers say sales of the Galaxy S4 just aren't living up the hype and Samsung's huge marketing budget. In fact, as Reuters reports, Samsung spent more on marketing than R&D in 2012, and that trend likely continued this year with the opening of Samsung stores within Best Buy and a lavish Radio City Music Hall launch event.
Samsung fell short despite reports that the company sold 20 million Galaxy S4 units during the first two months of availability. What has analysts worried is the momentum in the lower-end smartphone market, where Chinese players like Huwaei and ZTE are strong.
Samsung has a lower priced Galaxy S4 Mini on the way, but that may not be cheap enough to compete aggressively with its rivals. The South Korean giant also has a device powered by the Tizen OS in the works that will cater to emerging markets.
Apple and Samsung find themselves in a similar boat, with respective shares in the two companies falling 21 percent and 17 percent since the beginning of the year, according to the New York Times.
Samsung could certainly rebound during the second half of the year, with multiple variants of the Galaxy S4 hitting the market, from the rugged S4 Active to the camera-focused S4 Zoom. An S4 with LTE Advanced technology is also on tap. Then there's the Galaxy Note III, a pen-enabled phablet that's expected to pick up where the well-received Note II left off.
The biggest worry for Samsung, and all smartphone makers, is whether the high end of the market has become too saturated to sustain growth. Analysts believe that the company will need to invest in emerging categories like smart watches and other wearable devices to remain a force in consumer electronics.