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Business News/ Tech-news / News/  Samsung to unveil Galaxy as Apple, Xiaomi squeeze business
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Samsung to unveil Galaxy as Apple, Xiaomi squeeze business

Samsung is now facing slumping profit growth, a falling share price and increasing sales by Apple and Xiaomi

Samsung used a diverse Galaxy lineup to dominate a business that rewarded and then wrecked companies from Motorola Mobility Holdings LLC to Nokia Oyj. Photo: Bloomberg Premium
Samsung used a diverse Galaxy lineup to dominate a business that rewarded and then wrecked companies from Motorola Mobility Holdings LLC to Nokia Oyj. Photo: Bloomberg

Seoul:Samsung Electronics Co. Ltd will unveil a high-end Galaxy phone next week in circumstances far different than those facing the previous model as it fights to stay atop an industry that’s proven hard for one company to lead for long.

Instead of March’s exclusive gala at New York’s Radio City Music Hall for the S4, the new device will be unwrapped at a trade show in Barcelona, where the world’s biggest mobile-phone maker shares the spotlight with other producers and carriers. Samsung is now facing slumping profit growth, a falling share price and increasing sales by Apple Inc. and Chinese newcomer Xiaomi Corp.

Samsung used a diverse Galaxy lineup to dominate a business that rewarded and then wrecked companies from Motorola Mobility Holdings LLC to Nokia Oyj. After reaching the summit with devices selling for about $150 to $900, Samsung is being squeezed as Apple wins high-end users and Xiaomi and Lenovo Group Ltd pack advanced features into inexpensive models.

“The smartphone market is getting crowded," said Neil Mawston, director of global wireless practice for researcher Strategy Analytics. Samsung needs something different in its product designs to stand apart in a sea of black rectangles on store shelves.

The new phone will have a 5.2-inch screen that is larger and sharper than the S4, and have an upgraded battery and camera, according to a person familiar with the device who asked not to be identified before the public release.

Samsung shares rose 2.9% to 1,324,000 won as of 10:38am in Seoul trading, narrowing its decline this year to 3.5%.

‘Slight changes’

Lee Young Hee, executive vice president of the Suwon, South Korea-based company’s mobile business, said in an interview last month that the new device would see Samsung go back to the basics.

“Apart from the potential inclusion of eye-recognition technology," Samsung hasn’t released specifications before unveiling the device, which analysts expect to be named the S5, at the Mobile World Congress.

“No ‘wow’ factors will appear in the S5 with just some slight changes to design and functions such as a metal back cover or waterproofing," said Pak Yuak, a Seoul-based analyst at Meritz Securities Co. “Expectations have been significantly lowered."

Sul Jung In, a Seoul-based spokesman for Samsung, declined to comment on specifications of the device.

Slumping shares

The challenges are taking a toll on the company’s stock. Samsung shares have fallen 15% in the past 12 months, wiping out about $31.3 billion of market value. The stock fell 9.9% last year, the first annual decline since 2008.

Motorola, which pioneered the mobile phone industry, produced the world’s first commercial handheld device and led the analog market before being eclipsed as consumers switched to digital devices from Nokia and then smartphones. Lenovo agreed to buy the phone business for $2.9 billion last month.

Nokia, too, led the mobile-phone market before the introduction of Apple’s iPhone in 2007 sparked a consumer shift to smartphones, a switch that the Espoo, Finland-based company struggled to adapt to. In September, Microsoft Corp. agreed to buy the phone business for €5.44 billion ($7.5 billion).

Other market leaders that plummeted include BlackBerry Ltd, which put itself up for sale; Ericsson AB, which sold its handset unit to Sony Corp.; and HTC Corp., the Taiwanese smartphone maker that has posted nine straight quarters of falling sales.

Strategy shift

“To avoid a similar fate, Samsung is trying to make its mobile unit less dependent on blockbuster marquee devices by diversifying its lineup," said Marcello Ahn, a Seoul-based analyst at Quad Investment Management.

“Samsung will make an all-out effort to make the most of the lower-end market as it is the biggest and fastest maker of the cheap handsets," Ahn said. “The more smartphones become like commodities, the harder it gets for Samsung for sure, but it will become even harder for second-tier players."

That is a shift from last year, when Samsung debuted the S4 in New York while basking in its crowning as the world’s biggest smartphone maker in 2011.

The preceding phone, the 4.8-inch S3, was the company’s best seller as Samsung shipped about 65.6 million units, according to the median of three analyst estimates. That is more than the annual smartphone shipments of any other producer except Apple, according to data compiled by Bloomberg.

Software gimmicks

Fueled by the success of the S3, Samsung ramped up its own software for the S4 by including eye scrolling and gesture recognition technology. Critics, including those from Engadget, CNN, AllThingsD and the New York Times, dismissed some of the features as gimmicks.

Sales of the S4—which had a larger screen, faster processor and thinner body than its predecessor—have fallen short of the S3, with the company shipping only 63.5 million units, according to analysts.

“It isn’t as easy as it was in the past to put out a megahit model to impress consumers, who no longer make a big deal about new phones," said Lee Seung Woo, an analyst at IBK Securities Co. Instead of focusing and marketing heavy on one star product, the center of gravity is now spreading out toward other products.

Big screens

Apple sold 51 million iPhones in the December quarter alone, and last month the company began selling the devices through China Mobile Ltd, the world’s largest carrier with 772 million subscribers.

Xiaomi also gained market share in China in the fourth quarter to tie Apple with 7%, according to data released yesterday by Canalys. Xiaomi is the third-largest vendor in China in terms of shipment value after Samsung and Apple, according to Canalys.

Chief executive officer Lei Jun said last month the Beijing-based company may sell 40 million phones this year.

As the 5-inch S4 has foundered, Samsung has put extra emphasis into a market it pioneered: large devices such as its Note series, the latest of which sports a 5.7-inch display.

The company’s success has sparked imitation, with HTC Corp. and Coolpad Group Ltd targeting China with large screens. Apple is developing new iPhone designs including bigger screens, a person familiar with the plans said last year.

Samsung posted its slowest quarterly profit growth since 2011 in the three months ended 31 December, when net income excluding minority interests rose 5.4% to 7.22 trillion won ($6.7 billion).

Continuing to focus on a diverse lineup may be more important for Samsung at a time when many producers can mimic the latest technology innovations.

“Innovation from the high-end side seems limited," said Greg Roh, an analyst at HMC Investment Securities Co. in Seoul. A differentiated marketing strategy is more important than the competition over specifications. Bloomberg

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Published: 21 Feb 2014, 10:13 AM IST
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