Samsung have released their latest quarterly financials, and once again, it makes grim reading for bosses of the Korean giant. With profits set to fall for the 7th consecutive quarter, the once industry leader in technology is continuing its slide down the pack.
Where has it all gone wrong for Samsung, and will they ever mix it with the best again?
Founded in 1938 by Lee Byung-Chull, Samsung spent its initial years dabbling in sectors such as insurance, securities and retail. In 1970, they entered an industry that would put the Samsung name on the map. First engaging in the electronics industry in the late 1960s, Samsung spent the next four decades building a technological conglomerate by developing everything from TV sets to PCs, as well as investing heavily in research and development.
Such is Samsung’s dominance in their home country of South Korea, their $1,082 billion revenue in 2013 represented 17% of the country’s entire GDP. Despite impressive little tit-bits such as that, things are less than rosy at Samsung HQ.
The Latest Blow
Samsung’s performance has been slipping in recent years, compounded by another set of disappointing results in the three months from April to June 2015. At 6.9 trillion won (£3.9 billion), operating profit is set to fall 4% from the previous year, and is also lower than the forecast of 7.2 billion won. Similarly, sales are to fall 8% to 48 trillion won, well below the forecast of 53 trillion won. These unfavourable figures are doubly disappointing given the launch of their latest flagship smartphone, the Galaxy S6, took place during the quarter. A shortage in supply of their latest device, which was praised by reviewers, has fuelled a set of mediocre sales. It’s believed that current sales of the S6 are in line with Samsung’s previous flagship device, the S5, a year previously.
Where it’s Going Wrong
Given Samsung’s reliance on their smartphone division, any dip in market share can have a massive impact on the overall picture. Indeed, until the decline in sales posted here, Samsung’s biggest profit maker was their smartphone division. Now overtaken by their thriving semiconductor business, Samsung’s smartphones have had a number of factors impact on their decline.
One of which is a very crowded market. Whilst the UK has been busy for quite some time, in other emerging markets across the world, competition is intensifying. China has been area that, until recently, Samsung were largely free from any great rival. Recently however, Apple have rocketed up the market, growing 62.1% from Q1 2014 to Q1 2015. With 14.7% of the market, Apple sit atop one of the largest growing markets in the world (that was until China’s smartphone shipments finally fell during Q1 2015). Whilst Apple have stolen the show at the flagship end of the market, Xiaomi have squeezed Samsung out at the bottom. Armed with an array of budget devices and targeting the Chinese market, Xiaomi sit in second with a 13.7% market share. Meanwhile, Samsung have slipped off the podium into fourth (Huawei sit third), as 50% of its market share evaporated throughout 2014.
The bigger smartphone picture tells a similarly worrying story. Until recently, Samsung had held the position of largest worldwide smartphone maker, despite being comfortably outsold by Apple on mark-up. In March however, Apple’s increase in Chinese sales converted into a promotion to world’s number one smartphone manufacturer.
The warning signs are scattered along the smartphone industry’s short history. Household names such as Nokia and BlackBerry have seen dramatic rises and similarly dramatic falls as they failed to adapt and buckled under increased competition.
Their cause hasn’t been helped by a series of blows in other areas. In August 2012, Samsung paid Apple over $1 billion after being found guilty of violating six of their active patents. The two companies have grappled with one another in an ongoing saga, each accusing the other of copying designs. Overall, Samsung Electronics’ disappointing figures have seen them pull out of laptop sales in Europe late last year, and fail to capitalise on emerging markets such as wearable tech. Despite operating in the market for a number of years previous to Apple, the launch and subsequent sales of the Apple Watch far outstrip any of Samsung’s smartwatch creations.
Where do Samsung turn?
So, the future. Well, I’ll keep my words of wisdom under wraps, unwilling to disclose them here without a hefty CEO-esque salary. But, given their continued plight, Samsung do need a clear change in priorities.
Aside from the innovation shown in their latest flagship, the Galaxy S6, Samsung promised a sea change in their overall smartphone approach. An area the Korean giant are consistently trumped in is the mid-to-budget end of the market. Seeing significant growth as more users look for value in their mobile purchase, the market is swelling, with manufacturers recognising this consumer refocus. Samsung’s smartphone division may have to rely on a dramatic improvement in their mid-range devices if they are to relive the glory days gone by.
They could of course, look further afield from the smartphone world and embrace emerging markets a little further. As mentioned above, their attempts to gain a foothold in the wearables market has so far borne little fruit. But with recently elevating interest in smartwatches, and a plethora of other wearable options, the market is only going one way. Similarly, the Internet of Things is a market of huge potential growth, and the quicker tech manufacturers invest in IoT, the better.
Either that, or take the pessimistic view and accept they are a victim of the change in the consumer tech industry. Under attack from an unprecedented amount of angles, should Samsung just accept the market is now awash with options, and the pie has to be divided between an increasing amount of hands? Whilst that might seem a little defeatist, Samsung need to implement drastic change to arrest their seven-quarter slide.