Today.Az » Weird / Interesting » Samsung slump echoes demise of rivals BlackBerry and Nokia
08 October 2014 [15:45] - Today.Az
That is the scary thought that has Samsung’s executives – which has a highly critical internal culture, and always seeks improvement – desperately seeking the best route forward. Nokia, BlackBerry and Ericsson are salutary tales in the mobile business: former darlings which were too slow to adapt to changing markets, and were left behind. Samsung’s problem is that while it has dominated Android smartphones across the whole spectrum, from cheap to pricey, it is seeing its low-end sales eroded by upstarts such as Xiaomi and Huawei and Micromax from India, which have begun to match and even beat it for price and popularity. Samsung said the average selling price of its phones fell, “driven by reduced proportional shipments of high-end models” together with price cuts on older models. “Despite the discounts, sales did not increase, so that means they shed profit to just barely maintain their market position,” said Tom Kang of Counterpoint Research. Nor is there any sign of smartwatches – six in the past year – generating useful revenues. Jan Dawson, of Jackdaw Research, said: “As the vast majority of future global growth in smartphones will come from low-end customers spending under $150 (£95) on a handset, it’s going to be really tough for Samsung to get going again.” But Samsung’s bigger problem, say analysts, is that while it has dominated smartphones, it has not made itself irreplaceable. Samsung’s TouchWiz interface – its adaptation of Android – is not universally popular and its ChatOn app will not stop customers from switching to an Android handset made by Sony, LG, Xiaomi or Huawei. Whereas Apple has focused on building an enviable app library and content store through iTunes, Samsung has relied on Google and limited its room for manoeuvre. “Samsung has ceded control of the ecosystem to Google, meaning that the options that it has to differentiate its products in the future are extremely limited,” said Windsor. Meanwhile, sales of top-end phones are slowing, while Apple has continued to eat away at the premium market of phones costing more than $400. And during the quarter Samsung lost its lead in China to Xiaomi and in India to Micromax. Analysts concur that Samsung’s days of dominating the market by blanketing it with gigantic advertising and marketing spending – which includes payments to sales staff in phone stores – are over. Now, it has to compete with cut-throat margins at the low end, and newly resurgent rivals at the top end including Apple, which has released its large-screen iPhone 6 Plus that competes directly with Samsung’s Note series of “phablets” – phone-tablet hybrids – that are popular in Asia. “Samsung’s situation is graver than expected. It should put a greater emphasis on cost cuts and review its business strategies from the zero point,” said Oh Sang-woo, an analyst at Leading Investment. “What matters is how Samsung will protect its falling market share in China and key emerging markets like India.” Kang said: “It still has time, as that’s one of the advantages of being number one. People are reluctant to flock to an alternative all at once. But Samsung should get their strategy straightened out soon. They’ve been throwing the same course repeatedly, and getting pounded by the same player each time – Apple. They shouldn’t be stubborn; they can just pass over the star player and compete with the next in line. They can win the game if they swallow their pride. The market is about more value for the same amount of money, and Samsung should switch gears towards that.” But Windsor warns that as sales fall and the multiplier effect falls away, Samsung’s troubles could deepen. “If its share of phone sales continues to fall, then this multiplier will no longer be possible, and Samsung will come closer and closer to joining the long-suffering ranks of every other Android handset maker in the market,” he said. “These companies make 2-4% operating margins in the best instance.”

Samsung Electronics has reported a 60% slump in quarterly profits as the sudden decline in its mobile phone business draws comparisons with fallen rivals BlackBerry and Nokia.

Having risen in just three years to dominate the hugely lucrative global smartphone market, Samsung faces challenges on all fronts. Its flagship Galaxy S5 handset is not selling as well as last year’s model; Chinese and Indian rivals are stealing business and show no signs of stopping; and Apple is moving into its patch with large-screen premium phones.

Those factors led the South Korean company to announce on Tuesday that operating profits for the three months to 30 September were 4.1tn won (£2.4bn), down 60% from a year before, with revenues of 47tn won falling 20% from the same period in 2013.

The company signalled “declines in the mobile business due to intensified smartphone competition” and although it insisted that smartphone sales had increased marginally, some analysts took a different view.

 

Counterpoint Research, a mobile analyst company based in Hong Kong, said Samsung’s shipments had fallen year-on-year by more than 2% to 79m, and the “marginal increase” was in comparison to the second quarter’s 74.9m shipments.

It is the first time Samsung’s smartphone shipments have dropped year-on-year, which carries warning signs for its future. Its profit also relies on a multiplier effect: its phones use its displays and chips, so when handset sales are booming, more displays and chips are made, improving scale and lowering price, and helping to win outside business. When phone sales slow, the multiplier fades away, as do profits.

“Samsung is getting closer to the fate of its peers,” said Richard Windsor, of the Radio Free Mobile consultancy. Samsung uses Google’s Android software and analysts fear that Samsung has lost its chance to dominate other manufacturers that use Android, such as China’s Xiaomi and Huawei. Windsor said Samsung’s profits could follow the course of multiple Android handset manufacturers such as HTC, LG and Sony, which have boomed and then dwindled amid expanding competition.

“It appears that Samsung has been cutting prices in order to maintain market share but has lost market share anyway,” Windsor said. “This increasingly looks like beginnings of the vicious cycle which ended the dominance of Ericsson, HTC, Motorola, BlackBerry and Nokia.”

That is the scary thought that has Samsung’s executives – which has a highly critical internal culture, and always seeks improvement – desperately seeking the best route forward. Nokia, BlackBerry and Ericsson are salutary tales in the mobile business: former darlings which were too slow to adapt to changing markets, and were left behind.


Samsung’s problem is that while it has dominated Android smartphones across the whole spectrum, from cheap to pricey, it is seeing its low-end sales eroded by upstarts such as Xiaomi and Huawei and Micromax from India, which have begun to match and even beat it for price and popularity. Samsung said the average selling price of its phones fell, “driven by reduced proportional shipments of high-end models” together with price cuts on older models.


“Despite the discounts, sales did not increase, so that means they shed profit to just barely maintain their market position,” said Tom Kang of Counterpoint Research.


Nor is there any sign of smartwatches – six in the past year – generating useful revenues. Jan Dawson, of Jackdaw Research, said: “As the vast majority of future global growth in smartphones will come from low-end customers spending under $150 (£95) on a handset, it’s going to be really tough for Samsung to get going again.”


But Samsung’s bigger problem, say analysts, is that while it has dominated smartphones, it has not made itself irreplaceable. Samsung’s TouchWiz interface – its adaptation of Android – is not universally popular and its ChatOn app will not stop customers from switching to an Android handset made by Sony, LG, Xiaomi or Huawei. Whereas Apple has focused on building an enviable app library and content store through iTunes, Samsung has relied on Google and limited its room for manoeuvre.


“Samsung has ceded control of the ecosystem to Google, meaning that the options that it has to differentiate its products in the future are extremely limited,” said Windsor.


Meanwhile, sales of top-end phones are slowing, while Apple has continued to eat away at the premium market of phones costing more than $400. And during the quarter Samsung lost its lead in China to Xiaomi and in India to Micromax.


Analysts concur that Samsung’s days of dominating the market by blanketing it with gigantic advertising and marketing spending – which includes payments to sales staff in phone stores – are over. Now, it has to compete with cut-throat margins at the low end, and newly resurgent rivals at the top end including Apple, which has released its large-screen iPhone 6 Plus that competes directly with Samsung’s Note series of “phablets” – phone-tablet hybrids – that are popular in Asia.


“Samsung’s situation is graver than expected. It should put a greater emphasis on cost cuts and review its business strategies from the zero point,” said Oh Sang-woo, an analyst at Leading Investment. “What matters is how Samsung will protect its falling market share in China and key emerging markets like India.”


Kang said: “It still has time, as that’s one of the advantages of being number one. People are reluctant to flock to an alternative all at once. But Samsung should get their strategy straightened out soon. They’ve been throwing the same course repeatedly, and getting pounded by the same player each time – Apple. They shouldn’t be stubborn; they can just pass over the star player and compete with the next in line. They can win the game if they swallow their pride. The market is about more value for the same amount of money, and Samsung should switch gears towards that.”


But Windsor warns that as sales fall and the multiplier effect falls away, Samsung’s troubles could deepen. “If its share of phone sales continues to fall, then this multiplier will no longer be possible, and Samsung will come closer and closer to joining the long-suffering ranks of every other Android handset maker in the market,” he said. “These companies make 2-4% operating margins in the best instance.”



/theguardian.com/



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