Strong Price Competition in Smartphone Market Weakens Profits

From DailyTech: The major phone makers are gearing up to launch a wide range of new phones heading into the busy and lucrative holiday shopping season in Q4. The prediction from analysts is that sales volume for the major phone makers will grow, but the wide range of models and stiff competition on price will see profits slump for the major players in the industry.

Analyst Geoff Blaber from CCS Insight said, "The smartphone market is becoming heavily congested as a host of players seek to boost margins. The reality in the second half is set to be very different." He continued, "The market will swell in volume but price erosion will inevitably result in casualties as value is captured by a minority rather than the majority."

Reuters reports that the top three phone makers in the world -- Nokia, Samsung, and LG -- all saw their profits trimmed in the quarter ending in June thanks to fierce competition on price in the phone market. Samsung has already warned analysts and investors that profits and margins will get weaker in the second half of 2010. The firm saw its phone unit margins decline by 7.2% partly on boosted spending on marketing in the segment.

Samsung has no clear and compelling smartphone on the market, but it is hoping that the Galaxy S Android smartphone will help it get back to more robust profits. The Galaxy S launched in late June and all major U.S. carriers will get a version of the device. Samsung wasn't alone in seeing profits hit for the last quarter, Nokia margins slipped 9.5% and LG saw its margins drop to negative 3.5%.

Research firms still predict growth in the mobile industry despite profits slumping for major players. CCS Insight estimates the mobile phone market grew 13% over the quarter and IDC pegs growth at 14.5%.

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