Samsung (KRX:005930) is coming out with “refined devices” but it won’t change their dynamics
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An announcement came from Samsung (KRX:005930) last Friday that it would launch two new smartphones – the Galaxy A3 and the Galaxy A5 – which would be the slimmest smartphones it has ever made, at a thickness of 6.9 to 6.7 millimeters. What is more, Samsung (KRX:005930) is equipping both the smartphones with a “quad core 1.2 GHz processor”, which could most probably be a Qualcomm (NASDAQ:QCOM) Snapdragon 400.
The new Galaxy A5 has a 13-megapixel rear-facing camera as well while A3 has an 8-megapixel camera and both of them characterize numerous selfie modes (reported by Verge magazine). A lot was reported about the new smartphone except their prices.
Samsung is losing its mobile division profits:
The company has reported explicitly that its mobile division revenue has dropped from $33.2 billion to $21.9 billion during their last quarter which has resulted in a drop of operating profits from $6.23 billion to $1.63 billion. According to Samsung (KRX:005930) an average price reduction on older phones and a lower proportion of its smartphone shipments coming from the high end of the market resulted in this drop of revenues.
Whereas the company was confident that the smartphone shipments might rise up under the year-end seasonality boost, it admitted that the competitive pressures could further erode the average selling price. Thus, Samsung (KRX:005930) is in a worst case scenario: its huge mobile profits are being squeezed by Apple at the high end and a number of vendors willing to accept much lower margins at the low end and midrange.
Will the new phones change the current dynamics:
It can be deducted from Samsung’s (KRX:005930) move, that it thinks its problem is on the product side of the things and that it can produce “differentiated” products the customers would come back and pay a premium for its devices. Although it might sound untimely, but it is very unlikely that the “new products” may help Samsung (KRX:005930). Samsung (KRX:005930) already delivers products that contain top of the line specifications and high-quality components at the high-end of its Android market.
But it is unable to get the customer’s attention still. Whereas Samsung’s rival Apple is making the most profits out of the same high-end market. As Samsung “refines” its devices, so does Apple, thus equalizing the effect. Similarly, at the low-end and the midrange, there is almost no room for “differentiation”.
Due to the availability of the updated internal components, displays and software such as Google’s Android operating systems, smartphone vendors are able to capture market, thus, inflicting large companies such as Samsung (KRX:005930). Thus, it seems obvious that refining the body, customizing the Android user interface and including some other features is not going to add much value to command a huge premium.
Samsung’s not a strong threat for high-end products:
It seems Samsung (KRX:005930) is losing the war on both fronts. With the passage of time, the low-end and midrange Android market is becoming commoditized and this shrinks the profit which can be extracted out of it. Also the high-end market is although profitable, but it is the rival Apple which is snatching the profits away from Samsung (KRX:005930).
To sum it up, although Samsung (KRX:005930) has put out a solid Android phone as it has done in the past, nonetheless with the iOS-based devices rocking the market at the high-end and Samsung’s (KRX:005930) rival in the Android market doing excellent as well, it’s very unlikely that Samsung’s new devices will shift these dynamics.