Samsung shares drop 4% after CEO warns of tough 2016

Samsung shares drop after CEO warning
Samsung shares drop after CEO warning   

Samsung Electronics shares fell over 4 percent after the South Korean electronics giant warned of a tough environment in 2016 amid weak global economic growth and increased competition in its key business units.

Co-chief executive Kwon Oh-Hyun told employees in the company's annual New Year's address that issues such as emerging market financial risks could weigh on global growth. He also said that some of Samsung's core products – including smartphones, televisions and memory chips – will face intensifying competition.

Kwon said that in order to make sure their customers stick with their products, the company needs to change from a focus on hardware to software.

"The territories of industries are collapsing," Kwon said. "We have to compete in a new way that we've never experienced in the past."

"The competition landscape is changing to software and platforms, so we need to build a new system and competence," the CEO added.

Samsung has struggled in recent times with profitability and sales in its smartphone unit due to increased competition from cheaper Android handsets and Apple's bigger-screen iPhone range. It has however stabilized and performance in the mobile division improved in the third quarter thanks to better shipments of the flagship Galaxy S6 Edge+ and S6+.

But as hardware becomes increasingly commoditized, both Apple and Samsung have looked at ways to keep their users stuck to their devices and services. Apple for example released its payment wallet Apple Pay, as well as streaming service Apple Music in a bid to keep users glued to its products. Samsung has released its own wallet called Samsung Pay in response.

Kwon did not detail any specific figures, but the comments come ahead of official earnings guidance for the October-December period which is expected on Friday.

Samsung's operating profit is expected to come in at 6.8 trillion won ($5.7 billion) for the fourth quarter, 8.1 percent lower than the 7.4 trillion won recorded in the third quarter, according to a mean estimate of 36 analysts' forecasts compiled from a survey by Thomson Reuters.