Samsung Electronics disappointed investors on Tuesday when it posted its first sequential profit drop in seven quarters for the three months ended June 30, citing softer sales in its display panels and smartphones.
The company’s flagship Galaxy S9 series has failed to convince gadget lovers to upgrade their existing models in the wake of better choices offered by Chinese smartphone brands.
The South Korean tech group posted a net profit of 11.04 trillion won (US$9.87 billion) in the second quarter, a slight dip from the 11.05 trillion won reported a year earlier and down 5.5 percent from the previous quarter. Sales fell 4 percent year-on-year to 58.5 trillion won.
Smartphone sales amounted to 22.67 trillion won, down 22 percent from a year earlier or 18 percent from the previous quarter. Operating profit from IT and mobile communications was 2.67 trillion won.
In the second quarter, Samsung shipped 78 million handsets, down from 86 million in the previous quarter. The average selling price of its handsets was about US$220, down from US$250 in the previous quarter.
Despite the upcoming launch of its new flagship Note 9 series, Samsung expects handset and tablet shipments in the three months to September to be flat compared with the previous quarter, although the blended average selling price is forecast to be higher.
The weak performance of Samsung’s smartphone business was mainly due to lower-than-expected sales of its Galaxy S9 series. The company said the market environment will remain tough despite the strong seasonality factor amid growing competition from brands that offer higher specifications and lower prices.
To defend its market share, Samsung has decided to launch the new Note model earlier and at a reasonable price. For low-end and mid-range products, Samsung will respond to the competition by adding new features and enhancing cost-effectiveness.
The market reality, however, is that neither the Galaxy nor the Note series appears to have that “wow” or “must buy” factor that will convince users to replace their already advanced devices.
Smartphone users would like to see more substantial upgrades on devices. Last month Chinese phone maker Vivo launched a full-screen NEX device, which became a big hit in many markets due to its innovative pop-up front camera, a first of its kind in the market.
Other Chinese phone makers are also launching high-quality products at cheaper prices in emerging markets, adding to the pressure on Samsung. In India, for example, Samsung and Xiaomi are neck and neck, holding 29 and 28 percent of the market respectively in the second quarter.
There is a growing number of Android smartphone models in the market, and they lack unique and exclusive features.
Samsung needs to develop a new product with an innovative design that goes beyond the current form factor. It has been reported that Samsung is planning to launch a foldable smartphone model. This could turn out to be a big hit, considering that the current form factor of smartphones has been in the market for more than a decade after the iPhone debut in 2007.
Market watchers say that Samsung is working on a phone witha foldable screen, which could double in size when the screen is expanded.
A Samsung official told an investor conference call on Tuesday that a foldable smartphone requires a great degree of innovation, not only in terms of the display but other parts as well, including the battery and the case.
At the same time, there must be user interface to optimize and match the new form factor. In fact, this is the reason why research and development on the foldable smartphone has taken years.
“The introduction of this new form factor is expected to bring new energy to the rather stagnated mobile market,” the Samsung official said.
“We’re in the process of stabilizing the performance as well as durability by working together internally. Also, we are focusing on software and services optimized for this new form factor in order to raise the level of completeness.”
So Samsung, in effect, has confirmed that they working on this new product. But it must fast-track the development phase in order to bring the product to the market as soon as possible.
There are reports that Chinese smartphone makers are also stepping up efforts to produce a similar product and be the first mover in the market.
Indeed, time is of the essence here. Samsung must speed up the R&D work on ground-breaking products in order to stand out in the Android smartphone market. Its Chinese rivals are never far behind.
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