As Samsung begins to lose its grip on the smartphone market, the South Korean technology giant appears to be losing its shine for investors, with one long-time bull slashing his price target on its stock.
Mark Newman, senior analyst at Sanford Bernstein on Tuesday cut his 12-month price target on Samsung to 1.65 million won from 2 million won, citing a greater-than-expected loss of market share to Chinese smartphone brands and lower margins.
"Despite valuation, shares lack a catalyst in the near term and we expect them to remain range bound. Upside is significant but not likely to come before we see clarity around cash returns or stability of handset margins," Newman wrote in a note titled 'Samsung Electronics: Commoditize or Be Commoditized?'
Newman anticipates Samsung's smartphone margins will come under pressure as it gets more aggressive on pricing in the low-end to prevent market share loss and hold back Chinese manufacturers, which have become emboldened by the recent lack of competition from advanced players in the sub-$200 smartphone market.
"Protecting margins in the low-end is fruitless as it just hands share to Chinese competitors and eventually drives margins down anyway due to less scale advantage. Samsung must react now before it is too late," he said.
Newman forecasts Samsung's operating profit margins for its smartphone business to decline to 15.5 percent from 23.3 percent from 2013 to 2015. He expects handsets will make up just 47 percent of company profits in 2015 down from 67 percent in 2013.
In the second-quarter, Xiaomi, China's homegrown handset maker referred to as 'China's Apple', overtook Samsung to become the top smartphone vendor in the country, according to research group Canalys.