Too Many Things Giving Sleepless Nights To Samsung
Samsung still remains the world’s biggest smartphone maker. For the last couple of years, it was enjoying the limelight with the success of Galaxy smartphones, making billions of dollars competing with Apple in the premium mobile market. Analysts however believe its glamour days are over for the South Korean tech giant. The coming years are likely to be more somber, as it is forced to slash prices and accept lower margins to keep competitions at bay, including China’s Huawei and Xiaomi in the mid-to-low end of the market.
Samsung’s dilemmas may be many right now. Samsung faces competition from Apple iPhones on the high end such as the iPhone 6 and 6 Plus, and at the low-end, primarily, from a raft of Chinese smartphone makers, including Huawei and Xiaomi.
There are several other low-cost competitors using Android operating system and are producing increasingly-capable phones of their own. But as Ben Thompson, an analyst at Stratechery.com said, “As soon as low end hardware became ‘good enough,’ there would be no reason to buy a premium brand.”
And so, margins at Samsung’s mobile segment fell to 10.6% from 15.5% a year earlier during the second quarter of 2015, and though it remain the biggest smartphone maker others, led by Apple are reaping the rewards. Instead, the Samsung Galaxy S6 and S6 Edge haven’t produced the sales that Samsung had hoped for, partly because of component delays for the Edge, though it got some good reviews too.
The company plans to cut prices for the devices in advance of shipping new phone models, it said in announcing falling sales and profits for the second quarter last week.
Another issue with Samsung is sliding shares in the tablet – where smaller players are finding room to grow in the contracting tablet market.
Global sales of tablets fell by 7% year-on-year to 44.7 million units in the second quarter of 2015, says IDC. The market for tablets fell 3.9% compared to the first quarter of this year.
Rivals Apple and Samsung still dominate the tablet market, controlling 41% of the market, which represents a 4 percentage point drop from the same time last year. Less heralded players Lenovo, LG, and Huawei have been grabbing that share.
This can be crucial for the upcoming quarters, where smaller players can eat up a large share of the pie unless Samsung and Apple guard their turf.
Losing the China market
Once a top smartphone vendor in China, but it has seen its market share tumble over the years. The Korean electronics giant ranked fourth last quarter, even though it launched its newest flagship phone, the Galaxy S6.
In the Chinese smartphone segment, Xiaomi regained its position as China’s leading smartphone vendor in the second quarter, taking 15.9 percent of the Chinese market in the April-June quarter, followed by Huawei, which had 15.7 percent and was the fastest growing vendor, says a Canalys research.
Chinese consumers are buying more phones from homegrown vendors such as Xiaomi, Huawei and Lenovo. Many of their phones are cheaper than an iPhone or a Galaxy but come with similar specs.
While some analysts are criticizing the way Samsung is no longer able to create a buzz, giving example of Xiaomi, which has grown quickly by selling feature-packed Android phones at low cost. It made an art of marketing itself through social channels, building a strong fan base among young Chinese and keeping costs down by selling its phones online – which can be a lesson for brands like Samsung.
However, Gartner analyst Tuong Nguyen says in a statement, “It’s too early to start sounding the alarm bells for Samsung. It’s natural to see some share erosion when you have such a significant chunk of the market.”
He says, “Samsung is the largest phone maker as they have a comprehensive portfolio spanning low to high, but that’s also why they’re facing such competition.”
While Samsung’s dilemma is a real one, the South Korean company is still the largest smartphone maker in the world, by a big margin, with a 24% market share in the first quarter of 2015, according to Gartner.
At a recent analyst call last week, Samsung said last week that it will continue trying to maximize profitability and market share, disclosing plans to launch new larger-screen premium phones as well as more bargain-priced handsets.
Against such a competitive backdrop, analysts are banking on August 13, the day when Samsung is expected to announce a new Galaxy Note 5 phablet and a larger Galaxy S6 Plus smartphone. A Tizen-based Gear A smartwatch with a round face (unlike its previous models) is also on the card. With this, the smartphone maker hopes to gain momentum in the market.
The expected arrival of a ’round’ smartwatch, the Samsung Gear A, seems like a good response to the Android Wear-based Moto 360 from Motorola and others, though analysts are apprehensive about the Tizen OS running on its devices. A wait and watch approach would be better for now!
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