Is Apple Eating Into Samsung's Pie?
Samsung (SSNLF), the technology giant from South Korea, continues its bad run at the stock market. The company reported a staggering 20% fall in revenue coupled with a 49% collapse in overall profits in the last quarter of the current fiscal year. The cause for this has been attributed to the fact that Apple (AAPL) delayed its launch of the iPhone 6. People all over the world had been eagerly waiting for Apple to release the new iPhone. This kept them from buying Samsung's Galaxy S5 which was launched much earlier than the iPhone 6 and 6 Plus. Apple's latest smartphone have been released in big-screen sizes that competed directly with the Galaxy S5 and the Galaxy Note 3 and 4, Samsung's other giant-size high-end models.
Samsung immediately made a huge development. The company unveiled two phones last week, the Galaxy A3 and A5, both of which are mid-range devices made up of metallic bodies. The company has designed both the phones on the lines of iPhones. This reminds me of the patent suit that Apple had booked Samsung for not too long back. Surprisingly, the company officials have either forgotten that or are oblivious of the fact. The price of both the newly launched phones will be slightly cheaper than the iPhones. The analysts feel that keeping the price lower is one of the company's strategies to penetrate the market. They feel that the company top-dogs know that it's difficult to compete against the iPhone, so the company must compete instead against cheaper low-end Android manufacturers like China's Xiaomi by offering quality devices at reasonable prices.
Samsung's problem now is that it is being squeezed in the middle. The company has a huge range of cheap, low-end Android phones that yield big sales (as free wireless contract upgrade phones, for instance) but small profit margins. Chinese Android manufacturers have been gutting that business by making super-cheap Androids that are actually nicely designed. Xiaomi is probably the most fascinating phone company on the planet right now, with its unbelievably cheap Androids that have superior design.
For an extensive time span, Apple stayed a long way from the additional huge screen phone class, obviously in the conviction as originator Steve Jobs once said-that Apple's minimal 3.5-inch and 4-inch iphones were essentially the right size for clients in light of the way that they could use them with one hand.
That was Apple's gigantic mistake: Consumers did need huge phones, and Apple in a far-reaching way ceded two years or a more noteworthy measure of additional substantial screen arrangements to Samsung. In 2013, Apple finally comprehended that tremendous screens were driving advancement in phone bargains. That move appears to have executed off an extraordinary piece of the enthusiasm for Samsung's colossal phones.
Performance In The Last Quarter:
Samsung announced that their third-quarter profits fell 60.1 percent from a year earlier to the lowest in more than three years, as earnings for the mobile division continued to shrink. The world's top smartphone maker on Thursday reported a July-September operating profit of 4.1 trillion won ($3.90 billion), in line with its estimates issued earlier in October. Profits for the mobile division, which drove Samsung's earnings growth in 2012 and 2013, shrank to 1.75 trillion won from 6.70 trillion won a year earlier. This was the weakest since the second quarter of 2011.
To Conclude:
Western consumers will be shocked to know that Xiaomi is now the third-largest phone manufacturer by shipment volume worldwide. Xiaomi stole Samsung's low-end business, in other words, while Samsung was trying to solidify its lead as the high-end big screen leader.
Now it looks as if the market is moving away from Samsung in the high-end war with Apple. It will probably continue to supply its flagship Galaxy S5 and Note 4 phones. With the launch of Android 5, the battle gets steeper in the sphere of Android phones and therefore Apple is not the only enemy that Samsung needs to fight.
This article first appeared on GuruFocus.
