08/07/2014 Asia Business Report

heading for phthalate when it stopped because of problems with a

power cable. Time now for the latest business news live from Singapore

with Rico `` for Calais. Lower sales. South Korea's consumer

electronics giant Samsung reports a 25% drop in quarterly earnings. The

Japanese Prime Minister Shinzo Abe arrives in Australia with hopes of

signing a trade agreement. Welcome to Asia Business Report on BBC One

news. Samsung says operating profits fell by nearly 25% in the three

months to June to around $7 billion, that is compare two year ago

levels. The drop in earnings would be mainly due to slowing growth in

their once star performing division, smart phones. They are estimating a

10% fall in sales. We report on the challenges facing the tech giant.

This is the gadget that has helped Samsung become a household name

worldwide. The success of its Galaxy range has seen them become the

world's biggest mobile phone maker. Such as being the pace of growth

that the mobile phone division accounts for two thirds of the

overall profits. `` such has been. Until two months ago that was a good

thing but now it is an area of concern. That is because the pace of

growth of the smart phone market has been slowing. Prices are falling as

well, eating into the profits of manufacturers. To make matters more

complicated, competition in the sector is heating up with new

players coming up with various strategies to keep their costs, and

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

fastest`growing names in the region doesn't even sell in stores, instead

selling directly to customers via the website. The strategy seems to

be paying off. They sold 26 million phones in the first six months of

the year. Even though that is sun and Apple, the fact that low`cost

manufacturers are slowly and steadily eating into their market

share. Many are concerned that its dominance may not translate into the

healthy profits investors have been used to. Samsung will release its

actual earnings at the end of the month if the results are in line

with guidance it will be the company's bird straight quarter of

declining operating profit. I found out if Samsung has passed its

heyday. What has traditionally happened, they are increasingly

focused on smart phones, smart phones were driving the operating

profit for the past 12 quarters. Look at three years ago, 2011, if I

compare the financial statements, the operating profit from the

division was close to 40%, last quarter it was around 70%. The smart

phone business has been focused on the high end segment, has that been

saturated? In most of the mature economies, the high and smart phone

market is already mature. Consumers are less inclined to pay a premium

for new features of a smart phone. The incremental value that a

consumer sees is declining and there are so many competitors now. Before

it was a choice just between Apple and Samsung. Are they realising it

has been saturated and they should focus on the low end market and

diversify? You don't just have the traditional players. You have people

from China. And also India, a phone for less than $50 is coming out.

What Samsung is realising is that the traditional high end margin

smart phone business will not be the way to move forward. They need to

look at new forms of devices or even look at the portfolio, the whole

consumer electronics business, can they revitalise it? Despite this,

their stock price is up by about 1% at this hour in Seoul trade as it

said it cautiously expects a more positive outlook in the July to

September quarter. To Shinzo Abe and he is currently in Australia as part

of a week`long trip to the Pacific that included a stop in New Zealand.

He's the first Japanese prime minister to visit Australia in seven

years. A key item on his agenda is a signing of a trade agreement.

Earlier I spoke to our Sydney correspondent, Phil Mercer. Were

expecting him to sign this free trade agreement with his Australian

counterpart Tony Abbott `` we are. Details were thrashed out in April.

The Australian government believes that free trade agreement will be an

absolute economic bonanza for this country. It will also be not only

trade on the agenda but also defence ties as well. Both leaders expected

to sign an agreement to share military equipment. The resource

industry, Phil, still a major backbone of the Australian economy.

Mr Abe will be travelling to Pilbara in Western Australia, a centre of

the mining sector. Yes. It gives you an indication, Rico, as to what is

playing on Japan's mines in terms of coming to Australia. This is one of

the resource hubs of the Asia`Pacific region, the Pilbara

region in Western Australia is at the heart of the iron or trade.

Remember, it's not just China that has had a voracious appetite for

Australian minerals. Back in the day, Japan's interest was helping to

spark the industry long before the present boom. A very big time for

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

Rico, trying to brush aside concerns that close 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. Film is in

Sydney. Britain's Foreign Secretary William Hague and George Osborne

continue their three`day visit to India today in Delhi, where they

will meet with the Prime Minister Mahendra Modi. It follows a trip to

Mumbai to boost trade and business relations. The two British ministers

have made no bones about why they are here and that is to build a

relationship with a new government because of the landslide victory it

saw in elections a months ago. Speaking to business leaders not far

from here, they said they could feel sentiment about India had already

changed and within a day they could feel a buzz of excitement in the

country. Among the major announcements, perhaps the biggest

deal 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 investments, by Indian companies in the UK, won by an auto

major, investing in research and development for electric cars,

another by a big pharmaceutical company, which will put money into

cancer drug research. This visit comes in a big week for India. In a

couple of days the new government will be delivering its first budget

and Mr Osborne says it will be watched closely not just by people

in India and the UK, but by everyone worldwide, because it's the first

time we will see what concrete plan the new government has two

turnaround the government, economy, a promise made in elections. While

the UK is looking to do more business with India, one French

retail giant is planning its exit. They say they will shut down their

five stores in the country by the September. They have five wholesale

cash`and`carry outlets in operation since 2010. For the first time over

half of the world's population now lived in cities, and that number is

set to grow. However urban centres have also become the biggest source

of pollution. For example and safe 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 think tank, it is a growing economic one as well.

Certainly every city and every country should have the right to

develop the way it wants and if it wants to lose 5% of its GDP due to

air`pollution and another 5% of its GDP due to traffic congestion, if it

once and inefficient economy by using too much energy per unit of

output, if it wants its people spending two hours going to work

every day, fine. That's not the way a smart economy would work. We have

learnt a lot from the mistakes that cities have made. Let's do it

right. To address climate change governments will need to change the

way cities are built. But isn't this a very expensive proposition? Some

people think so, some people think they would love to address climate

change but it is too expensive. It turns out it is the other way round.

We live in an economy that is very inefficient. We use too much energy

and too much resources per unit of output. It turns out if you act

smartly on climate change, by reducing greenhouse gas emissions

you make your economy more efficient and that is especially true in

cities. A quick look at the markets, and Asian stocks are mostly lower in

midday Tuesday trade after US stocks slipped overnight before the start

of the earnings season. Investors are waiting for the release later in

the week of Chinese economic data. I'm Rico Hizon, goodbye for now.

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