Pressure mounts on Samsung as competitors up ante
By Edwin Yapp January 16, 2015
- Market share continues slide amidst rising competition, price war, better specs
- Newly-launched A series, targeted at youths, unlikely to save the day, say analysts
SAMSUNG Electronics Co remains the top-selling smartphone maker in the world for now, but keeping that crown has become increasingly challenging with its aggressive rivals baying for blood and doing everything in their power to topple the incumbent giant.
The Seoul, South Korea-based maker of the hugely successful Samsung Galaxy series of smartphones may have still ruled the roost at the close of 2014, but figures tracked by analyst firms indicate it is definitely under threat.
Gartner noted that sales of Samsung’s feature phones and smartphones declined in the third quarter of 2014, and that Samsung lost market share in both segments.
Samsung’s deepest decline came from feature phones, which decreased by 10.8% year-over-year, while demand for its smartphones weakened in Western Europe and Asia, Gartner said. In China, its biggest market, Samsung’s smartphone sales declined a whopping 28.6%, the research firm added.
This comes on the back of a 20.3% year-on-year growth in smartphones worldwide, reaching 301 million units from 250,300 million units, according to data compiled by Gartner.
Correspondingly, sales of Apple’s iPhones grew 26% in the third quarter of 2014.
With the introduction of two large-screen phones for the first time, the iPhone 6 and iPhone 6 Plus, Apple managed to neutralise the advantage of Android competitors, Gartner noted.
Meanwhile, the combined smartphone market share of the top three Chinese manufacturers – Xiaomi Inc, Lenovo Co Ltd and Huawei Technologies Co Ltd – grew by four percentage points, Gartner pointed out.
The research firm also noted that Apple’s and Samsung’s combined smartphone share totalled 37% in the third quarter of 2014, down seven percentage points from the same period last year.
Gartner said that with their ability to undercut prices and offer top specs, Chinese brands are well positioned to expand in the premium phone market too, addressing the needs of users who aspire to premium phones, but cannot afford Apple’s or Samsung’s high-end products.
Meanwhile, Bloomberg reports that according to research firm IDC, Xiaomi and Lenovo are hot on the heels of Apple and Samsung, with both jostling to become the third largest smartphone maker in the world.
Global market share slide
Last year was a difficult year for Samsung as it experienced some intense pressure from other players, particularly the trio of brands originating from China.
Its market share slide affected Samsung so much that the company warned of a third straight quarter of profit decline in the middle of last year, a fact that highlights the pitfalls of relying on smartphone sales to boost earnings.
On July 8, 2014, Samsung said its operating earnings in the second quarter fell by 22.3% to 26.5% from a year earlier, when it was hit by a glut of unsold smartphones, reported The Wall Street Journal.
The business daily noted that in the first quarter of 2014, Samsung’s mobile unit accounted for about 76% of company profit, compared with just 25% for the same quarter four years ago when it derived the bulk of its earnings from the sale of semiconductors.
As a result of this over-dependence on smartphone sales to fuel earnings, Samsung is struggling to keep a healthy operating profit.
Together with fluctuations in foreign currency, increased competition from rivals, and the difficulty of differentiating its products from the rest of the Android field, Samsung would likely see the operating profit margin at its mobile unit, which stood at 19.8% in the first quarter of 2014, whittled down over the next few years – faster than the market had previously thought, the Journal pointed out in another article.
Concurring with the Journal’s analysis, Neil Shah of Counterpoint Research said Samsung’s market share in smartphones is expected to drop to less than 25% for the full year in 2014 compared with a peak of 30% in 2013.
In an interview with Digital News Asia (DNA), the research director said the combined share of Huawei, Lenovo and Xiaomi is expected to climb to above 15% in 2015 up from 11% in 2013.
“Lenovo, Xiaomi are hurting Samsung in China and South-East Asia, whereas Huawei is doing the same in China, Europe and Latin America,” he said.
Jessica Kwee, analyst for mobile at Canalys, agreed, adding that both Huawei and Lenovo shipments have grown significantly by between 40% and 50% annually over last year, while Samsung only experienced single-digit growth.
Zooming in on Malaysia
Malaysia has always been a favourite hunting ground for Samsung, as the brand has been highly popular in the country over last three to four years.
But in the last year-and-a-half, China’s Xiaomi has made inroads into the Malaysian market, driven primarily by its unique strategy of selling its wares at an extremely cheap price and only via the Web.
The company also never markets its products and depends entirely on its fan base to promote them.
Meanwhile, both Huawei and Lenovo have also ramped up their smartphone range, as well as their channel strategies and marketing promotions, in the last 18 months.
Although there aren’t any official country-level sales or shipment figures, anecdotal evidence suggests that Xiaomi, Lenovo and Huawei have all taken a bite out of Samsung’s market share, as they have done in China.
However, according to Jensen Ooi (pic), market analyst for client devices at IDC Malaysia, it is likely that Samsung will still retain its position as the market leader in 2015.
The analyst said there is potential for low- to mid-range smartphones, especially within the youth market, as this segment is highly engaged with social media.
Next: New Samsung Galaxy A series to make a difference?