Saturday 18 November 2017

Snob status denied: how Samsung slipped in search for social smarts

It's got the Edge and the Galaxy, but Samsung has neither a niche nor the world at its feet in the competitive smartphone market. Photo: SeongJoon Cho/Bloomberg
It's got the Edge and the Galaxy, but Samsung has neither a niche nor the world at its feet in the competitive smartphone market. Photo: SeongJoon Cho/Bloomberg

For many business people in Ireland, the smartphone choice boils down to one of two choices: the iPhone or Samsung. But while Apple sales soar, the Korean giant is struggling to maintain its position atop the smartphone pile. This week, it admitted that profits are continuing to fall amid signs that its latest S6 smartphone hasn't sold as hoped. Updated accounts are likely to show a 4pc fall in profits, the seventh straight quarterly decline in a row.

At the heart of the problem is the struggle the Korean company is having trying to convince people that its flagship S6 phone is a natural "aspirational" handset replacement for Apple's iPhone.

When the S6 launched in Ireland earlier this year, the company's Irish deputy boss for Britain and Ireland, Conor Pierce, said that the company would try to establish itself as an "aspirational" brand.

"Brands that don't have aspirational value will struggle," he told The Irish Independent at the time. "We have the range now to give both aspirational models and low-end 4G devices that operators are seeing huge demand for."

A spokeswoman for Samsung declined to comment on questions related to the company's branding in Ireland.

Earlier in the year, Samsung - along with many industry analysts - had predicted record sales of the Galaxy S6. The company's display division is said to have started production at a third factory for curved smartphone screens about two months earlier than planned to meet demand.

However, analysts now say that the company overestimated sales for the S6 phone and underestimated sales for its pricier sister handset, the S6 Edge.

While the company says it has fixed the problem, it may be too late to fully capitalise on a lull in competition for new high-end devices ahead of the launch of the latest Apple iPhones, expected as early as September.

But Samsung may also be struggling when it comes to differentiating itself from cheaper rivals. Its operating system of choice, Android, now performs to a high level on low-end handsets of €150 and under. Big screen technology, 8-megapixel cameras and high-speed 4G access have also become commoditised on rival devices a fraction of the price of the S6 or S6 Edge. Samsung itself contributes to the tumbling price of high-performance handsets, with several models positioned at under the cost of its flagship phones.

China's economic slowdown is also Samsung's earnings. Chinese rival Xiaomi Inc last week said first-half sales fell from the previous six months. And industry-wide shipments in China, the world's biggest smartphone market, slipped in the first quarter for the first time in six years, researcher IDC said in May. But even comparatively, Samsung is struggling in China. In the first quarter of 2015, its Chinese phone sales fell from 20.5m to 9.6m units, according to figures from IDC. That happened as Apple has grown its iPhone sales in China by 72pc in the last year to become the biggest-selling handset in China. Samsung appears to be caught in a pincer movement between surging iPhone demand and the inexorable rise of Chinese rivals such as Huawei and Xiaomi. A 'China Confidential' research report for the 'Financial Times' found that the number of Chinese people planning on purchasing a Samsung product has fallen from over 30pc in 2013 to just 7.4pc this year.

In Europe, the figures are more difficult to gauge. A spokesman for Samsung declined to comment on mobile phone sales for Britain and Ireland.

Demand for Samsung's high-end devices helps drive profit in its component business, so a downturn in smartphones could also hurt income from chips and displays. "If high-end Galaxy S and Note shipments falter, this could lead to sluggish demand for key components such as OLED," said Peter Yu, an analyst at BNP ParibasA, said in report last month. Yu expects a larger version of the S6 Edge model to be launched in the current quarter.

Samsung also faces challenges around its overall brand. While there is no question of its global reach and recognition, the Korean company may have hurdles to overcome in persuading consumers that it retains an "aspirational" value above rivals such as LG or Sony.

LG, for example, markets most of the same products as Samsung: televisions, phones and home appliances such as washing machines, fridges and vacuum cleaners. But fears that this latest profit setback might put Samsung in any kind real trouble could be misplaced as its overall business appears to be healthy. Its semiconductor business, for example, is going gangbusters according to IT analysts. Even in the smartphone sector, its sales slips may be down to poor planning than soft demand: it reportedly could not keep up with demand for its most expensive handset, the S6 Edge. Samsung also had something of a bounceback earlier this year, reclaiming overall top spot for the global smartphone sales from Apple. Ironically, Samsung will make the main chip in the next iPhone model, regaining a customer previously lost among a round of bitter lawsuits between the two giant companies.

But margins are continuing to fall for the Korean firm. And like many once-dominant electronics companies that have gone before, it is finding that once technology becomes commodified, it is very difficult to build and maintain a branding edge based on design and "aspiration".

Samsung's biggest challenge may be that its commercial genius has been more associated with fast adoption and mass-market manufacturing than bleeding edge consumer desire.

No matter how much more powerful its processors and screens are compared to the handsets of its great Californian rival, cornering what's 'cool' is a different thing altogether. "This business is all about execution," Samsung's Conor Pierce said. "You may have a brilliant strategy, but it can fall apart without the right execution. "The biggest lesson is to keep looking outside, to listen to the market."

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