TOKYO — Samsung, which has just released weak first-quarter earnings, has a currency problem. After a 12 month period during which South Korea’s won advanced 23 per cent against the euro, Samsung is having trouble maintaining its sales. But the won has also declined in value against the US dollar, which has raised the company’s materials costs.
Samsung’s profits, in other words, are getting crushed between two separate negative exchange rate dynamics. And to top it off, Apple, Samsung’s primary competitor in cell phone sales, has just released a product, the iPhone 6, that is dominating the industry.
The situation adds a new wrinkle to a famous observation that Samsung Group Chairman Lee Kun-Hee made in 2007. Taking stock of Korea’s recovery from the Asian crisis a decade earlier, Mr Lee warned “we are sandwiched” between highly-developed Japan and low-cost China. He called for an innovation boom to support Korea’s continued economic rise. Samsung’s recent travails (profits slumped 40 per cent last quarter, the sixth straight quarterly decline) could not have been what Mr Lee had in mind.
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