Samsung smartphones are struggling to “wow” consumers with new phones- leading to slowing sales.
This week, the world’s largest smartphone maker said its third-quarter operating profit fell 60% from a year earlier to £2.5 billion, marking its weakest quarterly profit since 2011. Sales also tumbled 20% in the same period.
News of Samsung’s worsening condition come even as the tech giant maintains a stronghold on the global smartphone market – accounting for 25% of it in the second quarter of this year, according to technology research firm IDC. But, that’s down from 32% a year earlier.
With the mobile business making up 70% of its operating profit, Samsung has launched several products recently to try to stay ahead of its rivals, such as the latest version of its flagship smartphone Galaxy S5 in April, while being the first to launch the latest tech trend – the smartwatch – last year.
It also rushed the release of the newest editions of its larger screen Galaxy Notes – the Galaxy Note 4 and the Galaxy Note Edge – ahead of schedule in September to face off against demand for Apple’s larger screen iPhones.
But stiff competition from the likes of Apple in the premium end, and cheaper smartphones from Chinese rivals such as Xiaomi and Lenovo in the lower end, is making it more difficult for Samsung to see growth.
Analysts say Samsung will continue to lose market share unless it can figure out a way to once again “wow” consumers that no longer appear to be impressed by its massive line-up of products.
Fast-growing Chinese budget smartphone maker Xiaomi announced this year that it was planning to double the number of handsets sold in 2014 from a year ago to 60 million, which is the same amount that Samsung sold in China last year.
That has not helped Samsung’s case, especially when added to the delayed launch of Samsung’s long-awaited Tizen operating system, which would have reduced its reliance on Google’s Android system for its phones.
While analysts agree that it is too early to call the end of Samsung’s reign at the top of the market with still such a sizeable gap between it and its closest competitor Apple at 12% market share, they believe that Samsung’s current growth rate is not sustainable.
The double-digit growth last year that propelled Samsung’s mobile phone revenue to overtake its television revenue, will no longer happen in a saturated smartphone market.
But in order to stay on top of the market, Samsung needs to figure out how to better integrate its devices and add services on top of its phones to add value for consumers.
Samsung needs to narrow its focus from being a mass producer of phones in every segment to concentrate on areas where there is consumer growth, such as the lower end of the market.
Samsung’s future plans to reignite sales growth do seem to be heading in the direction of the lower end of the market.
In its earnings release on Thursday, the tech giant said it expects demand to grow for its new “middle-end smartphone models” but that may “require a potential increase in marketing expenses associated with year-end promotion” to keep up with the competition.
But Samsung’s earnings may also take a hit in the long term from this move- once you move to the mid-range segment, you look at the profit margin, and you probably have to sell two or three phones to equal the flagship model revenue that you can get.