Samsung: Does it need a mobile makeover?

Samsung: Does it need a mobile makeover?

Summary: Samsung is breaking out the promotions to clear out excess inventory of its smartphones. Analysts are calling for a shift in direction for the mobile unit.

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Samsung's second quarter results look shabby amid bloated inventory, marketing promotions to move devices and weak demand for tablets and smartphones in key markets like China.

The electronics giant's statement on its second quarter results provided a decent bit of detail, but the bottom line is profits will be weaker than expected. As a result, analysts aren't buying the company's outlook for the second half of 2014. Samsung's second quarter means the company will have to be more nimble before its mobile unit really takes a hit.

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Consider Samsung's reasons for a weak second quarter, which was partly the result of strong Korean currency relative to the Euro, US dollar and emerging markets. Samsung said:

  • "For smartphone, amid slow growth of the market, sell-in shipments fell in 2Q due to increase in mid- to-low end channel inventories as competition intensified among set makers in Chinese and European markets."
  • Marketing expenses surged to cut channel inventory and prep for new model launches.
  • China inventory was high due to demand and "price competition among local players." Europe inventory was high too.
  • Tablet "shipments declined more than expected due to weak overall demand." For good measure, Samsung said its 5- to 6-inch smartphones are hurting tablet demand.
  • Samsung said the third quarter would show improvement due to its new smartphone lineup.

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Analysts weren't buying it. Macquarie analyst Daniel Kim said:

In our view, Samsung needs to rework its mobile strategy from product development to inventory management to deal with stagnant top line growth and margin pressure. It needs to be more nimble, despite its huge size. It has to control marketing costs, although it has to address the global markets and the various price segments. It requires a more creative and out-of-the-box strategy, even though smartphone innovation is slowing.

Credit Suisse analyst Keon Han said:

To put it bluntly, the company failed to control inventory in China as its low-end platform strategy got stale in the face of improving specs and improved performances of local Chinese smartphone brands. Pricing competition remains fierce, with all brands fighting for thin profit margins.

The big question is whether Samsung can duke it out with lower-cost players and compete at the low-end of the market. At the high-end of the market there are also concerns. The Galaxy S5 has a design that is too similar to the S4 to warrant a big upgrade cycles. Tablet growth is slowing so that'll hurt Samsung too. When Apple comes out with a larger iPhone, Samsung will also have issues. Smartwatches aren't likely to save the day either

Bottom line: Samsung, Android's lead dog, has a multi-front war in the smartphone market. It will have to develop different tactics going forward.

TechPro Research:

Topics: Mobility, Android, Samsung, Tablets

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15 comments
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  • Market saturation

    People just don't need a new phone every 6 months.
    dilettante
    • Wait for July 22nd

      If Apple releases bad numbers for the iPhone, then you can say it's down to market saturation. Otherwise, you can just put it down to Apple claiming the rest of the high and middle tiers of the market.
      Englishmole
    • Market

      But that sure doesn't stop them from buying one. :(
      david95
  • Samsung has a structural problem

    This one sentence highlights samsung's problem.

    "shipments fell in 2Q due to increase in mid- to-low end channel inventories as competition intensified among set makers in Chinese and European markets."

    This will not change going forward and will only increase the race to the bottom. Android phones with decent specs (quad core processors, HD displays, 2GB of ram etc) are as common as tooth brushes. Samsung needs to refocus on producing higher end phones with marketable features (multi window for example) and give up the low end of the market. They can not compete on rpice with Chinese companies. Samsung needs to focus on fewer, better phones going forward.
    Low_tech
  • Clean-up your phones Samsung

    They need to stop piling junk on their otherwise good phones. They have lost this customer because of that, the S4 will be my last Samsung phone until they stop throwing on so much crapware. TouchWiz should go and let each phone stay lean and mean, let the consumer decide about the launcher. Go ahead and create what ever crapware you want, just be sure to make it so we can delete it. Stop reinventing the wheel and put that money towards better and faster hardware and quality materials. Just don't drop SD card support like Google advocates.

    Smart phones are approaching something of a feature plateau for now in my opinion(for what that's worth), until some radically new miniature feature can be stuffed into the pocket form factor, so I'm OK with evolutionary changes for now. The size choices we have now are fine, but please get the durability right and cut down on the frequency of your new models and ever so similar models.
    TheRealUMLGuy
    • My point exactly

      Whenever I help a friend with his smartphone and he's got a Samsung, I invoke all the swear words I know. Their TouchWiz interface is a complete nightmare for some used to Nexus style and before that HTC Sense which is not that much different than Nexus in navigation.

      Samsung's phone navigation is so different than regular Android that I can't find anything.

      And why, oh why is the back arrow on the right???

      I swore I would never get a Samsung phone after playing a bit with my friend's phone.
      lepoete73
  • Competiton

    Samsung is using the old strategy - don't change things in a winning team.
    But competition was never so strong, they do need a makeover if they want to keep their smartphone market share.
    As a consumer is irrelevant (probably even good) that Samsung lose some market share. Balance can be good.
    AleMartin
  • iPhone 6

    I will be making the jump to the iPhone 6. I'm tired of all the crap Samsung ware is throwing in. The PIN entry is slow, there are so many buggy things that make the responsiveness laggy. I would much rather go to the simpler to use platform of iOS 8.
    Zippinglou
  • samsung's problems have nothing to do with market saturation

    and everything to do with bad low and mid range phones. you can get great phones these days in the $200-$400 range, and samsung offers terrible quality for inflated prices in those ranges.

    their flagships are good quality but even at the flagship range prices are starting to be pressured downward.
    theoilman
  • Industry wide problem

    Just looking at a Forbes article that says that Iphone's market share in the US is the lowest it has been since 2011. Honestly, for myself, the phones have come to the point where upgrading is not a wow event any more. I still have a GS3 that continues to be fast, and now that it is upgraded to 4.4 is incredibly up to date. People who complain about Samsung's lag baffle me. I'm running a 2+ year old phone that is fast as the day I bought it.
    larsonjs
  • Too many variations of the same thing...

    waters down your brand! Samsung was releasing too many variations of what was essentially the same crappy cheaply-built plastiky phones. With inflated prices. I never understood how someone could pay so much for cheap looking plastic. Nowhere else would we except paying so much for hardware that looks like it came from the bargain bin.

    They were more concern with maximizing profits in the short term than thinking about the strength of the brand(s) long term. We saw the same thing happen to the Droid brand. Started of great as something consumers understood, then Moto started offering too many variations which led to confusion - and a watering of "Droid".

    This market continues to reminds me of the WinPC market. Everyone's fighting for minimal margins.
    dave95.
  • If Samsung need a mobile makeover...

    Then what does Apple need? Looking at the weekend at phones and the iPhone 5 form factor looks like some clunky old antique compared to the array of sleek Android competitors.

    Yeah I'd agree that Samsung have gone overboard with too many similar sized models... BUT there is/was an obvious reason for that - Apple.

    By filling up all the size niches they have prevented Apple from claiming those spaces via silly patents suits.
    By flooding the market with 7 inch, 8 inch, 8.4 inch, 10.2 inch etc tablets they have swamped the market and if Apple step into those sizes they will automatically be the copycat not the innovator.

    Samsung know exactly what they are doing - encircling Apple for the kill.
    Lord Minty
  • Bahahaha...

    Samdung and Crapple days are over...One can't fool the fools forever...
    Owl:Net
  • Samsung

    I have a Note 3 and it's excellent. Samsung uses the cutting edge in specs and their software integration just works. It's a tough macro economic environment and it's liable to get much much worse in the next couple of years.
    Michael Lodge
  • My next phone

    will be a phablet. I haven't decided which it will be. I currently am using a Samsung Galaxy Ace II X, but I'd prefer to NOT get a Samsung next time. Too much crapware.
    mheartwood