Oh how the mighty have fallen – not completely down, but if Samsung does not produce some real innovations, they will never rise to their glory days when they sold Galaxy smartphones as fast as they could build them. Competing against Apple, Samsung made billions of dollars in the premium mobile market, and the combination of high-quality hardware, features and the Android operating system was the perfect recipe to reap high profits and worked for several years in a row. The problem now is that formula will no longer work for Samsung and they are struggling in the smartphone market – both at the high-end and at the entry-level – to make any kind of mark in sales or profits.
Like every ‘perfect storm,’ a confluence of forces usually results in an aggravated situation that can have drastic results. In Samsung’s case, their best friend may actually be their worst enemy – Android. Samsung took Android and put it in a premium package that nobody else had…oh eventually HTC, LG, Sony and Motorola caught up in quality, but Samsung always had some new innovations to woo their customers. What has hurt Samsung is that now they have Xiaomi, ZTE, Huawei and others that have a great build quality and offer the same Android that the expensive Samsung models are offering.
There is no longer a reason for someone to pay a premium price for one of their Galaxy devices when they can get the same features on a lower priced device. Meanwhile, Apple reaps the benefits of this ‘war’ going on among the Android manufacturers. The iPhone is the only smartphone that uses iOS, so it can sit back and maintain a high profit because it has no competition, unlike Samsung. This could be the very reason Samsung was trying to develop their own OS called Tizen, as a way to differentiate themselves from the Xiaomi’s of the world.
Because of the situation, Samsung will not be able to continue to compete against Apple in the premium market based on hardware alone. Samsung will have to compete on major technological breakthroughs – for instance, when Samsung brought out the Galaxy Note series, they created a new niche and have been able to hang on to it because nobody does a big screen and stylus better than Samsung. Samsung needs to keep innovating to keep consumers’ interests up, and one wonders if they have that ability or is it that technology breakthroughs are just harder to come by these days.
Samsung said last week that it will “flexibly adjust” prices of its Galaxy S6 and Galaxy S6 Edge in order to boost third-quarter sales after already lowering the price in July by 100,000 won or about $85. Nomura analyst C.W. Chung says that Samsung has the economies of scale to outlast many rivals, as well has their flourishing chip business in which they are dominating. Nomura forecasts that the smartphone market will grow from $276 billion last year to $315 billion by 2017, which bodes well for Samsung’s chip sales, but if they can be innovative enough to increase their own smartphone sales remains to be seen.