Samsung Stands at Smartphone Crossroads: Change Now or Die

by Matt Klassen on August 13, 2014

While Apple has long faced questions about the stability of its consistent perch in the upper echelons of the smartphone market, no one can argue that the Cupertino Company has weathered the storms of the mobile market with great care and poise, for although the company had its top spot usurped by Samsung several years ago, it has always maintained a strong second place.

The same consistency and stability, however, does not seem to come as naturally to Samsung, as the company has been hit with successive bouts of bad news. The Wall Street Journal reported that earlier this week that “credit rating agency Fitch Ratings predicted that Samsung’s global smartphone position would erode further, while another analyst slashed his price target for Samsung’s shares while calling for the company to ‘react now before it’s too late.’”

This news follows a troubling successive downturn in Samsung’s quarterly earnings and some fear that this mounting run of bad luck is brining the world’s largest smartphone firm to what is shaping up to be a crucial watershed moment, a choice between two paths: one to continued success and the other to guaranteed failure.

While Samsung has built a smartphone empire on a strategy of flooding the market with phones for everyone at every price point, it seems the Korean company is now being beaten at its own game, particularly in key markets likeChinaandIndiawhere other low cost options are starting to capture significant market share.

As the WSJ report explains, “As Chinese companies like Xiaomi, Lenovo and Huawei make cheaper and cheaper products that meet most consumers’ needs, Soni warned that Samsung had lost its edge with consumers. He added that innovations like wearable devices and curved screens – two of Samsung’s recent tricks–are ‘unlikely to change the trend.’”

This rapid growth of affordable and competitive Chinese-based smartphone options subsequently prompted Fitch Ratings to predict a steep decline in Samsung’s global smartphone share, falling from 31 percent this year to 25 percent in 2015, the beginning, many think, of the company’s precipitous decline.

The depressing outlook on Samsung’s future didn’t stop there, however, as Bernstein Research analyst Mark Newman noted that Samsung “could be in for real trouble in the smartphone market if not for ‘a drastic change in smartphone strategy.” Newman also slashed his price target for the company and counselled investors and the company itself to “react now before it’s too late.”

Samsung itself doesn’t seem to be overflowing with confidence either. Following their most recent lacklustre earnings report the company issued the following statement: “Prospects for growth remain unclear as competition over global market share intensifies in the mobile industry… Samsung expects to see its sales of mobile devices increase with the rollout of flagship products and new models, but profitability may suffer due to a heated race over price and product specifications.”

I have to wonder just how Samsung will respond to this growing crisis, as it seems the only path to increased and sustained profitability will be to follow Apple’s lead, which includes its own in-house operating system. With Samsung working on its own Tizen OS, could we see the Korean company jettison Android earlier than expected as it tries to maintain its tenuous grip on key emerging smartphone markets?

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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