08/07/2014 Asia Business Report

BBC News, all the latest business news live from Singapore. Lower

sales, South Korea's Consumer Electronics Show giant Samsung

signals a 25% drop in quarterly earnings. And Japan's Prime Minister

Shinzo Abe arrives in Australia with hopes of signing a trade agreement.

Thank you for joining us on Asia Business Report on BBC World News.

Samsung electronics's profit likely fell to around $7 billion in June,

25% lower than a year ago. That has mainly been due to slowing growth in

the country's one star performing division the smartphone business.

The company is estimating a 10% fall in sales. Our correspondent reports

on the challenges facing the tech giant. This is the gadget which has

helped Samsung become a household name along around the globe. It has

become the world's biggest mobile phone maker. Such has been expressed

that the mobile phone division now accounts for more than of Samsung's

overall profits. While that was a good thing until a few months ago,

it is now becoming an area of concern. That is because the base of

growth of the smartphone market has been slowing down. At the same time,

prices are falling, which is eating into the profits of manufacturers.

To make matters more, credit, competition in the sector is heating

up, with new players coming up with various strategies to keep their

cost, and as a result the prices of their gadgets, low. One of the

fastest`growing names in the region doesn't even sell its phones in

stores like this one. Instead selling them directly to customers

via its website. The strategy seems to be paying off. They sold more

than 26 million phones in the first few months of the year. Even though

that is far less than Samsung's or Apple's numbers, the fact is that

low`cost manufacturers are slowly but steadily eating into their

market share. While few doubt Samsung's ability to maintain its

market lead, many are concerned that its dominance may not translate into

a healthy profits that investors have been used to. Samsung will

unveil its actual earnings at the end of the month. If the results are

indeed in line with the guidance numbers, it will be the company's

third straight quarter of decline in operating profit. Earlier I spoke

with a correspondent from frost and Sullivan and asked if Samsung had

passed its heyday. What has it happened is that the smartphone

business was the one driving the operating profit for the past 12

quarters, and if you look at impaired to two years back, 2011, if

I compared the financial statements, the operating profit was

close to 40%, and last quarter it was close to 17%. The smartphone

business has been focused on the high end segment. Has that already

been saturated? Yes, what we are seeing in most of the mature

economies, the high end smartphone market is already mature. Consumers

are now less inclined to pay a premium for increased features of

the new smartphone as opposed to what they are already holding. So

the incremental value for consumers has declined. And there are so many

competitors now. Earlier it was just between Apple and Samsung. Are they

realising it has been saturated and they should now focus on the low`end

market and maybe diversify to other consumer electronic products? That

is another challenge. It is usually propagated. You have not just the

traditional players but those from China, and new smartphone

manufacturers. An Indian manufacturer is marketing one for

less than $50. So that is propagated. But what Samsung now

realises is that the traditional high end market smartphone business

will not be the way to move forward. They either need to look at some new

forms of devices, or maybe even take a good look at the portfolio. Can

they revitalise it? Shinzo Abe is in Australia as part of a week`long

trip to the Pacific including a stop in New Zealand. Shinzo Abe is the

first Prime Minister to visit Australia in 17 years. A key item on

Shinzo Abe's agenda is the signing of a trade accord between the two

countries. I spoke to our Sydney correspondent Phil Mercer. We expect

him to sign this free trade agreement with his Australian

counterpart Tony Abbott, details of that agreement were thrashed out in

April of this year. And the Australian government believes that

that free trade agreement will be an absolute economic bonanza for this

country. It will be also not only trade on the agenda, but also

defence ties as well. Both leaders expected to sign an agreement to

share military equipment. And the resource industry, still a major

back bone of the Australian economy. And Shinzo Abe will be travelling to

Western Australia, a centre of the mining. Yes, it gives you an

indication as to what is playing on Japan's mines in terms of coming to

Australia. This is one of the resources hubs of the Asia`Pacific

region. The pill region in Western Australia is at the heart of the

iron ore trade free sample. `` Pilbara. And remember it is not just

China. Back in the day, Japan's interest was helping to spark the

industry long before the present boom. So a very big`time for

Australia as it seeks to further its trade with Japan. Ministers here are

trying to brush aside concerns that closer economic ties with Japan

could upset Australia's biggest trading partner China. Australia

says it can be friends with both, and it isn't taking sides. Phil

Mercer in Sydney. Britain's Foreign Secretary William Hague and George

Osborne have continued their visit to Delhi. Where they are visiting

Narendra Modi. Our correspondent has more. The two British ministers have

made no bones about why they are here. And that is to build a

relationship with the new government, because of the landslide

victory that it saw in elections just a few months ago. Speaking to

business leaders, not far away from here, they said that they could feel

sentiment about India had already changed, and that within the party

here, they could feel abuzz of excitement in the country. Among the

major announcements, perhaps the biggest was the signing of a defence

contract between the UK and India, for British made missiles to be used

by the Indian Air Force. There were two other investors by Indian

companies in the UK, one by an automaker which will be

investigating development of electric cars, and a pharmaceutical

company which will be putting money into cancer drug research. His visit

comes in a big week for India. In a couple of days' time the new

government will be developing its first Budget. And it will be watched

closely not just white people in India and the UK but by everyone

around the world. Because it is the first time we will see what concrete

plant the new government has to turn around the economy, which is a

promise they made during elections here. While the UK is looking to do

more business with India, one French retail giant is planning its exit.

Carrefour said it will shut down its five stores in India by September.

The company has five wholesale cash and carry out in operation since

D10. American travel firm Expedia has agreed to buy out Australian

website wotif. The deal will give Expedia a wider presence in Asia.

Its online brand includes hotels .com. For the first time in history,

half of the world's population now lives in cities. That number is set

to grow. Urban centres have become the biggest source of pollution. For

example, unsafe air quality levels are the worst in Asia, with India

and Pakistan's major cities topping the list. But pollution in cities is

not just a health problem. According to a Washington, DC `based

think`tank, it is a growing economic one as well. We spoke to the head of

the world resources Institute to find out why. Certainly, every city

and every country should have the right to live however they want. And

if it wants to lose 5% of its GDP due to air pollution, and another 5%

of its GDP due to traffic congestion, and if it wants to have

an inefficient economy by using too much energy per unit of output, and

if it wanted people to spend two hours going work every day, fine.

But that's not the way that a smart economy would work. We have learned

a lot from the mistakes that cities have made. And so... And economies

have made, and so let's do it right. To address climate change,

governments will need to change the way cities are built. But that isn't

this a very expensive proposition? While some people think so. Some

people think they would love to address climate change but it is too

extensive. Well turned out, actually, it is the other way

around. We live in an economy in the world which is very inefficient. We

used to much energy, too many resources per unit of output. And it

turns out if you act smartly on climate change, by reducing

greenhouse gas emissions you actually make your economy more

efficient. That is especially true in cities. Before we go, a quick

look at the markets. Stocks are mostly lower in early Tuesday

trading. Samsung shares are higher despite the lower earnings. Thank

you for interesting your time with us. `` investing.