Where is the Profit at Samsung? There is None….

Samsung Electronics (593-KR), the maker of the Galaxy S phones, came out with its annual earnings today. The electronics giant showed its first annual earnings decline in three years. Strong semiconductor earnings failed to make up for the losses seen in their smartphone business.

The chip making was the one bright spot for Samsung as its fourth quarter operating profit came in at $4.88 billion. This was in line with the company’s guidance set earlier this month. This put the electronic giant’s total 2014 profit at 25 trillion won. Last years, record setting profit, was at 36.8 trillion won. This is its lowest profit since 2011 as it is seeing stiff competition from China’s smart phone makers and a fresh new Apple iPhone (AAPL: Nasdaq).

Samsung will face more headwinds in 2015 as the Eurozone’s economy continues to slow and emerging markets face some financial risks.

Samsung’s Semiconductor Business Stands Out

The company’s semiconductor business, chip making, showed a profit of 2.7 trillion won. This is its highest level in four years. This division helped the company to recover from a 60 percent drop in its overall operation profit in the third quarter last year. Samsung is seeing a good demand for its memory chips, which are used in their smart phones, like the iPhone and system servers. Their business to business chip business also improved.

While not enough to salvage overall earnings, chip making was a plus, however the company’s flagship handset business is a worry. Earnings from smartphones and tablets fell off 64 percent to 1.96 trillion won. This is the fifth quarter drop in a row for the embattled division and a stark opposite of what is happening with Apple and its record setting pace. Apple is seeing huge success with its fresh new iPhone 6 and 6 plus. Mobile share of Samsung’s operating profit plummeted 70 percent in 2013 to a mere 58 percent in 2014.

Smart Phones and Tablet Shipments Continue to Decline

The company reported that the shipments of tablets and smartphones continued its decline into the fourth quarter. However, Samsung reported higher average prices that’s to sales of its Galaxy Note 4 phablet. The company did not release sales of its smartphones, so we do not have any data to report.

Samsung cut its guidance for sales regarding smartphones and tablets in 2015 citing seasonal factors for the first quarter. This move comes despite the relative success of its mid-tier Galaxy A units. Bottom line, the company will have more losses this year as well unless it can do what Apple did with its iPhone and rejuvenate their flagship smartphone division.