The top cell phone maker in the world, Samsung Electronics based in South Korea has seen its profits eroded due to pressure from rivals across China that are cutting prices.
Last week the electronics giant announced that profit for the last quarter could be as much as 25% lower than for the same period one year ago.
Among other things, Samsung has blamed the intense competition from mobile handset manufacturers in China such as Huawei and Xiaomi that have quickly gained market share across China during the past year thanks to handsets selling at just breakeven prices.
Chinese manufacturers are in other industries as well, including PCs, which has helped to produce products cheaper.
This type of strategy is often used after the maturity of a market is reach, at which time companies from China find ways to produce and sell their products at just over cost, increasing market share and eroding the profits of those who there before them.
Analysts and investors are wondering now if Samsung will elect to slash prices or increase innovation as a way to fight back.
The response by Samsung on where to find new profits could shape the entire market of smartphones. If Samsung were to make aggressive cuts on prices to help sales, it could pressure the likes of Motorola, HTC and Nokia to lower their prices.
That in turn could lead to products of lower quality or margins that are even slimmer for the industry of smartphones as a whole.
In many financial quarters of late, only Apple and Samsung have earned profits from their smartphones.
The lower end of the market is not the only worry for Samsung. At the high-end is Apple, its main rival, which has continued to see improved sales in iPhones.
Cupertino, California based Apple could enjoy even greater success this year if rumors of it releasing a phone with a bigger screen in the fall takes place, which many people feel it will.
Samsung does not appear to be headed down the path of price cutting. A statement by the company said it would compete through its diverse lineup of products that help fulfill the needs of consumers.
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