Samsung Electronics activated its supply chain "emergency plan" because the initial success of the new Galaxy S26 is a critical variable that will determine the fate of its mobile business this year. Profitability concerns have intensified as soaring component prices are now compounded by disruptions to Middle East logistics networks.
The most painful aspect is that this major crisis emerged when securities analysts had already lowered their earnings expectations. At the end of last month, just before Iranian airstrikes intensified, Macquarie Securities slashed its operating profit forecast for Samsung Electronics' smartphone (MX) division by 51% to 3 trillion won. The brokerage also sharply reduced projections for home appliances and display operating profits to 500 billion won (down 46%) and 3.9 trillion won (down 8%), respectively.
Industry observers warn that actual results could fall further below forecasts if Middle East tensions deepen and shipping costs surge. Management's sense of crisis has reportedly reached its peak. At the start of the year, product price increases driven by rising component costs were the biggest concern. Now, an unexpected surge in logistics costs from the Middle East has plunged the company into the worst double blow.
An unprecedented cold spell is forecast across the smartphone market. According to Counterpoint Research, global smartphone shipments are projected to fall below 1.1 billion units this year due to chipflation—the lowest level in 13 years and a 12.4% year-over-year decline.
To make matters worse, geopolitical risks are choking logistics networks. With Middle East routes, a key aviation hub, failing to function properly, cargo aircraft rerouting has become unavoidable. Rerouting a Boeing 777F freighter alone adds $25,000 in fuel costs, intensifying cost pressures on manufacturers.
The logistics crisis is spreading across industries including electronics and automakers. LG Electronics, whose mainstay products are bulky home appliances, is concerned that surging logistics costs will erode profitability. LG Electronics' transportation costs reached 3.111 trillion won in 2024. An industry official noted, "If the situation drags on, transportation costs could skyrocket when quarterly or semi-annual logistics contracts expire and new ones are negotiated."
Hyundai Motor Group is also on high alert for potential schedule delays at its first Saudi Arabian production subsidiary, which is targeted to begin operations in the fourth quarter of this year. If strait blockades materialize, delays in procuring semi-knocked-down (CKD) parts and rising maritime freight costs could impose massive cost burdens on initial operations.