The world’s No. 1 smartphone maker is suddenly stuck in the doldrums. Samsung Electronics, Samsung Group’s flagship and the maker of several hit gadgets such as the Galaxy series, announced an unsettling 25 percent year-on-year slump in operating revenue in its second-quarter figures Tuesday. Since sales of mobile devices contribute the bulk — reportedly 70 percent — of the firm’s earnings, Samsung phones look to have lost some of their shine.
The Korean tech giant blames stalled sales in China and other key markets for the dismal performance. China used to bring in 18 percent of Samsung’s income but now almost everyone who can afford a smartphone already has one, shrinking China’s contribution to 15 percent according to some estimates.
Samsung has swiftly rolled out newer generations of leading lines such as the phablet Galaxy Note 3 and Galaxy S5 in the past 12 months compared with Apple’s longer cycle, but customers have been reluctant to upgrade devices as new offerings have failed to deliver breakthrough technologies. Galaxy’s major selling point used to be its bigger screen but now that is standard for almost every brand.
The 21st Century Business Herald reports that Samsung smartphones are piling up at retailers, with one complaining that it would take 12-14 weeks to clear the stockpile; in the good old days, new products were always in short supply.
Part of the problem is the army of homegrown brands nipping at its heels. The Galaxy S5, the Korean company’s latest offering, is priced at more than 5,000 yuan (US$806) while products from local outfits like Huawei, Lenovo, ZTE (00763.HK, 000063.CN), Coolpad and Vivo offer the same specs at a fraction of that price.
These Chinese firms were once notorious for piggybacking on Apple and Samsung devices but they now seem to have carved a niche with impressive value for money. Grass-roots consumers like migrant workers will certainly embrace these cheaper alternatives if they’re in the market for a smartphone. And, since products from Samsung and these domestic brands all run the Android system, there’s mostly little difference in user experience.
A Huawei senior executive was quoted as saying that Samsung doesn’t have any unique competitive edge over his firm. Other reports said China’s big three state-owned telcos have all lowered their subsidies for expensive phones and switched to promoting cheaper products to lure network users.
Market researcher International Data Corp. has warned that global smartphone sales will expand by less than 20 percent this year compared with 2013’s 40 percent. Analysts say the trend is clearer in China where the high-end segment is becoming saturated and top-shelf models are giving way to products priced at 1,500 yuan or less. Samsung does have cheaper items but the hardware is very inferior to those of the indigenous rivals.
Data from consultancy firm Strategy Analytics show that Samsung sold 15.3 million phones and had a 19.4 percent market share in China in the second quarter last year. But that figure tumbled to 16.5 percent a year later, according to Sino Market Research. Lenovo and Coolpad each now command 10 percent of the market.
The pressure is unlikely to let up for Samsung for the rest of the year as Apple prepares a blockbuster launch of bigger-screen iPhones to win back high-end users lost to Samsung. At the same time, a wave of cheap 4G phones — some priced at less than 1,000 yuan — will wash over the market.
Some observers now worry that Samsung may become another HTC, the Taiwanese company that used to be the leading light in smartphone technology but languished when it was overtaken and its cheaper offerings failed to ignite interest. Media reports say that in an obvious bid to rejuvenate sales, the firm has promoted a Chinese executive to oversee its operations in the country.
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