Slumping Samsung’s smartphone business

The context then had to do with the switching of roles between Apple and Samsung in the smartphone business. In more ways than one, the tables were turning for these two tech giants, as they traded places both in the stock market and in winning patent law suits against each other. In August 2012, it […]

The context then had to do with the switching of roles between Apple and Samsung in the smartphone business. In more ways than one, the tables were turning for these two tech giants, as they traded places both in the stock market and in winning patent law suits against each other. In August 2012, it was Apple whose worth was soaring and was the one winning patent lawsuits against Samsung. However, as of June 2013, it was Samsung who was getting richer and winning patent lawsuits (against Apple).”
In fact, Samsung’s lot soared so much last year, as it picked up the slack in Apple’s net worth, and became the world’s biggest smartphone maker by volume.  There were several reasons for Samsung’s success. While Apple used to be regarded as the ultimate innovator of electronic gadgets and the software engines to drive them, Samsung was simply the “improver.” But then, Samsung outspends Apple on research and product development by a large margin. Furthermore, unlike Apple, who probably spends mostly on scientific and engineering research, Samsung is very heavy on market research, with over 34 research centres world-wide. Samsung also spends heavily on ads, for example, when compared with Apple and Microsoft. Unlike Apple, who embraces the philosophy of an integrated business model, where a company makes it all – operating system (OS), hardware, browser, etc., Samsung used to be the ultimate partner, which enabled it to receive some insight into how to plan investments for successful products, and could use the same resources to build its own products. This is why Samsung has long had a reputation of being a “fast follower”.”
Also equally important to Samsung’s success is its model to dominate both the high-end and low-end of the smartphone market. Simply put, iPhones and iPad are not affordable in emerging markets like China, India, and Indonesia. On the other hand, Samsung has something for everyone.
Thus, Samsung’s clever business model and agility, collaboration initiatives, extensive market research, and its “diverse portfolio of price points” saw it through in its efforts to dominate the gadget world.
That was until last quarter. A tribute to dynamism, Samsung’s smartphone business is now slumping, and the company is no longer the biggest smartphone maker! Since Apple’s smartphone business is also taking a hit, it’s obvious that the problem with Samsung isn’t wholly due to Apple, although Apple did manage to win a lawsuit against Samsung a couple of months ago – an innocuous event – and the iPhones are still plugging along.
At the high-end of the smartphone spectrum, the demand has simply saturated, and Samsung, as well as Apple, must innovate in order to continue to do well in the marketplace. You can now understand why Galaxy S5 didn’t quite catch up.
Despite the downward sales trend, other companies, such as HTC, LG, Nokia, and even the troubled BlackBerry were, at least as of this January, still introducing their own phablets. Smartphone makers also continue to roll out new devices, as if their game has no end. Moreover, they are adding enhancements to the devices, giving them larger screens, and adding tablet capabilities. There are even new entrants into the business.
The declining demand for high-end smartphones is simple to understand: most of the people who wanted (and could afford) a high-end smartphone already have one. Thus, the slow-down is simply a manifestation of demand saturation. For folks who already have a smartphone, subsequent demands are going to be driven mostly by the need to replace the old devices. As Samsung is finding out, incremental feature additions may not get the buyers to the shop – there has to be radically different features in new devices in order to maintain the peak demand for smartphones that was witnessed two or so years ago.
Besides smartphone saturation, analysts are of the opinion that Samsung (and Apple) might be losing share in the competitive market for the top-of-the-line smartphones as Chinese smartphone makers appear to be giving them a run for their money. In the past couple of years, Samsung has tried to spur its smartphone business, not just by putting out better devices, but also in the software arena. The company has also invested heavily in innovations, including wearable computers. Samsung’s smartphone success has depended strongly on Google’s Android OS, which powers Samsung’s devices. Now, Samsung has developed its own OS called Tizen, which I expect will rival Android somewhat. However, Samsung has not yet launched Tizen. According to the company’s co-CEO J.K. Shin: “We want to make sure that all the elements are in place. Tizen was first used in our wearable devices and we want to use it to connect with the various devices that we have, like cameras, vehicles and appliances.”
Samsung’s problem may even be worse at the low-end of the smartphone market, due to rising competition from Chinese rivals such as Lenovo, Huawei, and ZTE, who are selling much cheaper Android-driven devices. You see, China and India have the populations, but their people do not have the expendable income to afford high-end smartphones in relatively large numbers. So, the low-end phones will reign in those regions. Unfortunately for Samsung, this is the specialization of the domestic rivals in China.
The bottom line in this article is that Samsung has lost its place as the biggest smartphone maker in the world, as the demand for the high-end smartphones has saturated and the low-end devices are the specialty of the domestic rivals in the countries where the demand for them (low-end devices) is high.