So Much for Samsung!

October 31st, 2014

For quite some time now, members of the media have proclaimed Samsung the indisputable winner of the smartphone wars, the veritable king of the hill. Apple was doomed to niche status, so might as well get ready for the PC and Mac wars revisited. You know, that’s when Microsoft cemented its leadership long ago, and Apple was consigned, forever they believed, to niche status with tiny single figure market shares.

Yes, Apple’s worldwide Mac market share is still in the single digits, but the figure has now returned to levels not seen since 1995, before Windows 95 essentially took over the PC market for most people.

But it’s time for a reality check in the mobile business. In recent quarters, the conventional wisdom about a victorious Samsung has been turned on its ear. Big sales, sure, but wait!

So Samsung still manages to sell tens of millions of smartphones each quarter, roughly twice as many as Apple. In the last quarter alone, some 78.1 million handsets were shipped, representing an 8.5% decline in unit sales from the year-ago quarter, where some 85 million were sold. To add insult to injury, mobile revenue was down 34% over the year-ago quarter, which means that Samsung’s sales mix is moving downmarket. That’s not a good thing, except when the critics suggest Apple has to cut prices to stay competitive.

So the devil is in the details, and the details mean that customers continue to gravitate towards cheap Samsung handsets. In other words, Samsung is having a harder time moving high-priced Galaxy devices, which really hurts profits. It didn’t help that the flagship Samsung Galaxy S5 launched to lukewarm reviews, although some still extolled its perceived virtues, whatever they are supposed to be.

But while Apple reported quarterly profits of $8.5 billion in the past quarter, Samsung Electronics profits were a “mere” $3.8 billion, down 60% from the year-ago quarter. And remember that this number also includes profits for sales of TVs and appliances, not to mention the displays and chips that are sold to other tech companies including Apple. It’s still a profit, of course, something that Amazon rarely sees. But if Apple reported a profit decrease that high, you’d never hear the end of it. Even slight profit declines in past quarters were met by joyful yelps by critics who still refuse to take the company seriously.

Long and short of it is that, despite lower revenue and profits, with margins in the single digits, Samsung is still selling lots and lots of gear. It is still getting a pass from members of the media who focus on gadgets with lots of features, often ignoring the worth of those features in real world use. So we have the Galaxy S5 with a fingerprint sensor that’s not easy to use, and often doesn’t even work.

I remember my experience with the S5’s predecessor, the Galaxy S4, which was bloated with loads of silly features, such as Tilt to Scroll, which was supposed to do what the name implied. Well, at least when it worked. The OS, heavily laden with Samsung’s fluff, was endlessly buggy. Today, people complain about the lapses in iOS 8 or even iOS 8.1, but they don’t hold a candle to some of the problems you’ll encounter on an Android device, particularly one that’s stuffed with junkware.

Now I don’t want to seem as if I believe Apple is being deliberately persecuted by the media. Being very large and in your face with advertising and compelling products, Apple is a natural target. The competition wants to take them down, and the press is only too happy to see powerful companies fail.

But I’m not about to suggest that Samsung is doomed to failure. Clearly there are problems, and the product mix is moving in the wrong direction. Samsung may have reached the end of the line producing commodity gear with an overload of features that aren’t necessary or are barely functional. Presumably there are lots of brilliant engineers on board who are quite capable of delivering extraordinary, innovative products if management only had the vision to spur them on.

Don’t get me wrong, though! Samsung is still making pretty decent profits, and sales are nothing to be sad about. That Apple has managed to squeeze them at the high end is a matter of Tim Cook making smart moves, such as the hot-selling iPhone 6 series that’s still back ordered. iPhones with larger displays have very much sucked the air out of the competition. What’s more, newer handset makers such as Xiaomi, a hotshot company that considers itself China’s Apple, are making a big dent at the low end of the market.

So Samsung has to find new ways of doing things, or just hope Apple and Xiaomi will each fail in some fashion so they can get on with their business. That, however, doesn’t seem very possible right now.

If Xiaomi ever gets to the United States, I just wonder whether that company will be proclaimed the next Apple killer. Time will tell.

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5 Responses to “So Much for Samsung!”

  1. John says:

    I’m quite pleased about this. With less profit they will be forced to cut back on those annoying Next Big Thing ads they splash everywhere. Last year they spent about $14B on advertising. That number will have to come down a lot.

  2. No Name says:

    You think 14 billion on marketing would be better spent on making a Moto G or Xiaomi killer, but NO, they have to release overpriced, terribly underspec, filled to the brim with junkware budget models and models every week. And if sales are bad, it clearly means there aren’t enough models out there yet!

  3. James Katt says:

    Xiaomi deliberately sells their smartphones only in countries where Apple can’t sue them.

    So no. Xiaomi won’t come to the US.

  4. dfs says:

    When you speak about the financial impact of disappointing Galaxy sales on Samsung, you have to realize that electronics is only one of the things this huge octopus does. The Samsung Group does a handsome business in HDTVs and computer monitors, and also makes such diverse products as televisions, Blu-ray gear, cameras, refrigerators, washers and dryers, printers, and light bulbs. Even if the Galaxy’s sales figures aren’t all that great, I wouldn’t lose any sleep worrying about the health of the company as a whole. You could entirely chop off one tentacle of this particular octopus and it might still continue to thrive. Very different from Apple, where the sales of a small number of key products could make or break it.

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