Why Samsung's latest Galaxy Note 5, Galaxy 6 edge+ face steep odds

Samsung is expected to deliver its latest Galaxy Note and potentially a larger Galaxy 6 edge at its Unpacked event. Can Samsung maintain premium prices?


Samsung's expected launch of its Galaxy Note edge flagship on Thursday may give the consumer electronics manufacturer some relief in the Android smartphone and phablet wars, but the long run will remain challenging at best. Simply put, the dynamics in the Android market have shifted.

On Aug. 13, Samsung will host its latest Unpacked event and the tech rumor mill includes a new Note and possibly a larger Galaxy S6 edge. Samsung's Galaxy S6 launch didn't have much of an impact on the company's smartphone business in the second quarter. The Galaxy S6, which was designed to be an iPhone 6 killer, struggled from supply of its edge version. Overall, Samsung's smartphone units fell 10 percent sequentially in the second quarter.

Now Samsung is likely to cut prices on the Galaxy S6 line in the future.

Let's ponder the moving parts against Samsung:

  1. Verizon last week nixed its contract plans for installment ones. The U.S. wireless carriers have all flocked to this model. The days of subsidies are over due to a tidal wave started by T-Mobile and guess what'll happen: Consumers are going to know what smartphone devices actually cost. Are Android devices worth a premium?
  2. Lenovo's Motorola unit is launching the Moto X Pure in September and the phone is well equipped starting at $399 unlocked. Considering you'd pay anywhere from $199 to $299 under contract, the Motorola flagship looks like a no brainer if you're in the Android ecosystem.
  3. High-spec, low-cost handset vendors will take increasing share in the Android market. Consider the success of OnePlus and Xiaomi. Many of these Chinese players started on the low-end of the market and have moved up. As a result, there will be no premium Android phones in the future. It's a supply of 200 Android smartphone brands with so-so demand.

Oppenheimer analyst Andrew Uerkwitz lays out the scenario facing Samsung, LG and other high-end Android vendors.

We believe the market for the traditional high-end Android phones of iPhone-like price tags will gradually shrink to an immaterial size, and lower-priced, high-spec competitors such as Huawei, Xiaomi, and OnePlus will take over their share of the Android users.

As we pointed out before, we observed a structural disconnect in the Android handset market, where interests between the infrastructure provider (Google) and hardware OEMs are misaligned. The disconnect between the operating system and handsets, or OEMs' lack of control over operating system, will continue to exacerbate the fragmentation problem for the Android ecosystem, which has been one of the main reasons for inferior user experience on Android devices. Also, handset makers are forced to compete on non-OS elements such as hardware features and price. As high-end components are commoditized, the traditional high-end vendors such as Samsung will invariably lose share to lower-priced competitors such as Xiaomi and OnePlus. We predict that the smartphone market will ultimately behave like the notebook market, where Apple dominates the high-end, and the bulk of the non-Apple mass market segments converge to value OEMs.

Uerkwitz's observation is on target and will likely become reality faster than any of us expect.

TechRepublic: How OnePlus might quickly champion the smartphone market

The future is the Moto X pricing. I'm willing to bet that high-end Android smartphones will be defined as an unlocked handset going for about $250 tops. What can Samsung do other than cut prices? Note that I'm not convinced that Apple will completely avoid the smartphone price scrutiny. An unlocked iPhone 6 starts at $649. The unlocked Samsung Galaxy S6 will run you about $570 or so with the Galaxy S6 edge going for about $650 to $750 on Amazon.

Apple has integration, its iOS, services, premium hardware and a unique platform to hold the premium pricing fort. Samsung and LG are in a loop where they can't offer value add software without bloating Android.

With that backdrop, Samsung's Galaxy Note 5 and S6 edge+ would have to teleport you from New York to Sydney to command a premium price.


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