Samsung's preliminary financial results for 2014's second quarter aren't offering warm and fuzzy feelings for the smartphone industry. Quite the opposite, in fact.
A year-over-year and sequential drop in operating income of about 24 percent marked the Korean giant's third straight quarterly decrease. One reason for the slide, as a statement from Samsung indicated, was the relative strength of the Korean won. Exchange rates can have a negative effect if a nation's goods become more expensive to export.
Of bigger concern to the industry, however, was how changing demand for mobile devices can trip corporate earnings in consumer electronics. Samsung cited slower seasonal smartphone sales, price competition and weaker 3G sales in general in China. But Europe also saw weaker demand.
In addition, people are waiting longer to upgrade tablets. A growing number of consumers have also decided to make do with a single device: smartphones with a 5-inch to 6-inch screen that replace a smaller tablet.
Put more succinctly, the mobile device industry is seeing a natural slowdown that comes with maturity. Devices already have enough power that buyers don't see enough difference to immediately buy the next new model. Convergence between tablets and smartphones has begun to happen in earnest, letting people buy one device instead of two. And strong competition has brought greater price pressures because less practical differentiation exists between high-end and budget devices.
If such trends continue, the results could be fiscally unpleasant for most of the electronics industry. Companies continue to use a business model that became established early in the history of PCs: Sell a product, create a substantially better model and then get users to upgrade relatively quickly.
Eventually, though, this approach peters out. When consumers don't perceive enough of a jump in capability, they don't feel they have to spend more money. Yes, a company can keep finding new customers, as both Samsung and Apple (AAPL) have -- up to a point. But eventually the market matures and slows, just as PC sales have.
This pattern always happens. Concern about growing maturity in mobile markets is why Apple investors often react badly, at least for a short period, if the company fails to announce a major new type of product when expected. Innovation is code for "we haven't reached the end of the gravy train yet."
Expect increased attention on both Samsung and Apple during their next few announcements of new models and product lines. If neither can inspire consumers as they commonly did even a couple of years ago, then the market may be shifting to a commodity phase, which will mean different winners and losers.