The introduction of the iPhone in 2007 was one of the biggest shifts in trends for the smartphone industry. Just look at where companies that chose to ignore the iPhone – Nokia, BlackBerry, Motorola, among others – are today. Samsung, on the other hand, realized the threat that Apple and its iPhone brought and also saw it as a great opportunity to make its presence felt in the smartphone industry. However, seven years later, it seems Samsung has missed the next big shift in the smartphone space and is paying dearly for it. Also Read - Samsung Galaxy A02s allegedly spotted on Geekbench, key specifications tipped
Yesterday Samsung announced its quarterly profits fell nearly 25 percent – its worst performance in two years and the third consecutive quarter of profit decline. Also Read - Samsung Chairman Lee Kun-hee dies at 78
“Considering intensifying competition of price and specifications as well as the release of new competing models, it is difficult to expect earnings to improve from the second quarter,” Reuters quoted Senior Vice President Kim Hyun-joon saying about the mobile business during a conference call with analysts. Also Read - Samsung Galaxy F12 launching in India soon: Will it be another renamed Galaxy M device?
This one chart from IDC’s Q2, 2014 smartphone shipment tracker report rounds up Samsung’s current situation in the smartphone industry. Among the top five smartphone vendors, it was the only one whose shipment volume declined from the same period last year. Even Apple, which like Samsung lost some market share, showed growth in shipment volumes despite rumors of a bigger display iPhone in the offing, which typically makes people hold on to their purchase plans.
Moving away from Apple and Samsung, check out the growth posted by Huawei and Lenovo. Huawei’s shipment volumes almost doubled and Lenovo grew by over a third. Even “others”, which would include the likes of Xiaomi, Motorola and a slew of local Chinese and Indian smartphone brands, grew by almost 40 percent during the same period where Samsung’s shipments declined.
Samsung is missing out on a key trend – commoditization of smartphones. The next growth in the smartphone industry is coming from users who are migrating from feature phones to smartphones. These users are not looking for the latest cutting edge hardware in their next phone but are highly price conscious. And in the sub-$200 price segment, Samsung is struggling to compete with local and Chinese vendors.
Unlike Samsung, which has to bear high R&D and marketing costs, these players are using existing technology that doesn’t involve them spending any R&D dollars. They don’t have extravagant marketing budgets either, just doing enough to ensure their devices get visibility at points of sale. And they of course have an edge over Samsung when it comes to pricing. The situation reminds me of the time when Chinese and local Indian brands introduced feature phones with dual-SIM card slots and swept away Nokia’s feature phone market share.
Things are only likely to get tougher for Samsung in the entry-level smartphone space towards the end of the year. With $100 Android One smartphones coming sometime around the end of September, it is clear that Samsung would have a tough time selling its smartphones in that price range. Add the likes of Motorola and Xiaomi, and things look really bleak for Samsung at the moment.