Samsung’s Slumping Sales may Signify Stagnating Mobile Market

by Jeff Wiener on June 13, 2013

Late last week many Samsung investors abandoned ship when a research note from J.P. Morgan predicted that the company’s third-quarter shipments of its new Galaxy S4 would be disappointing, sending the Korean tech giant’s stock plummeting. In fact, the company lost about US $12 billion in market value on Friday alone, with further losses on Monday.

While many wonder how investors could loose confidence in a company that sits atop the mobile mountain and that was only a few months ago the darling of the mobile world, it may not be Samsung’s fault per se, but simply that the mobile market is changing, becoming, as analysts note, a ‘commodity business’ much like the PC industry, and like the PC industry smartphone growth has started to flat-line as consumers become wary of flashy incremental upgrades.

In fact, while it took the PC industry years to really feel the effects of stagnation, the mobile market is likely to get hit much harder, much faster, by changing consumer opinions, and its always those at the top who feel it first.

The problems all began for Samsung when J.P. Morgan released its report, finding that Samsung’s supply chain shows a progressive decrease in monthly orders starting in July, meaning that Samsung has already foreseen a downturn in consumer interest for its new Galaxy S4 and has responded accordingly. This lack of confidence in its smartphone sales over the next few quarters, however, is of great concern for investors, many of whom were caught off guard by this report and were subsequently sent scurrying for the door en masse.

But the decrease in orders for the Galaxy S4 may have more benign explanations than an overall market shift, some analysts say, pointing to the fact that the initial sales for the GS4 have been much stronger than its predecessor, meaning the sales of Samsung’s new smartphone may be simply reaching their natural equilibrium after such a strong start.

As Barry Randall, a Covestor model manager, recently told the eCommerce Times, “I believe that because the immense S4 sales momentum was stronger than it was for the SIII upon the latter handset’s release, it’s logical that the inevitable sales growth deceleration would happen sooner and be more pronounced for the S4.”

But others aren’t as convinced, seeing Samsung’s forthcoming downturn as a sign of an overall stagnation of the mobile market. “Just as the PC industry became a commodity business and flat-lined, the same is starting to happen with smartphones, albeit with a much faster cycle,” Bill Douglass, principal of Gotham Communications, explains. “Consumers are seeing fewer and fewer compelling reasons to trade up to the ‘Next Big Thing’ in mobile phones, because the innovations are now just incremental, rather than truly disruptive.”

There’s no getting around the fact that most big players in the mobile market have maintained their lofty perches through incremental upgrades instead of radical innovation, with Samsung finding its own recipe for success in offering multiple upgrades to its Galaxy line within a given calendar year. While luring consumers in with promises of the latest cutting edge technology, it seems the masses are starting to realize that the phone they have is just as good as the newer flashier one being advertised, meaning they’re less likely to incur early cancellation fees or the like to get their hands on the latest and greatest.

In fact, perhaps the most telling thing about this entire situation is not Samsung’s sales projections, but the fact that the Korean tech giant spends more now on marketing then it does on R&D, evidence that the entire mobile market is content to rest on its laurels while consumers like us continue to get bored with what’s on offer.

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