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Samsung's Sliding position in Asia is a Big Reason to Worry

August 05, 2014 | About:
Riddhi Kharkia

Riddhi Kharkia

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The might of the emerging smartphone markets and the significance of markets like China and India is known to most investors and analysts. In one of the last editions of an Indian business daily, I came across a rather large advertisement for a smartphone company other than Samsung, which is creating a rage in the Chinese markets. Yes, I am talking about Xiaomi and to give you further context, when this exploding smartphone maker put up its first batch of phones on sale in India, it got over within a few seconds. This is big news for the investors of Samsung (SSNLF), a global leader in smartphone sales which seems to be struggling to maintain its dominant position in extremely important markets.

The China woes

As per a recent news report, Xiaomi overtook Samsung in the second quarter to become China’s top smartphone OEM on the back of around 15 million shipments representing a 240% year-over-year growth in the number. In the last four years since its incorporation, Xiaomi has become a raging brand across China because of its ability to offer similar specifications at affordable prices. Now, this is not-so-good news for the aficionados of Samsung as it has been fighting for a good time in order to retain its dominant position in the biggest Asian markets. This piece of bad news follows Samsung’s declaration of its worst quarterly earnings in the last two years wherein the company reported an operating profit of 7.9 trillion won (approximately $7 billion U.S) down from $9.53 trillion won in the year ago period.

The results of the leading smartphone manufacturer were hit because of increasing competition from emerging phone makers who are giving out similar feature packed phones at a lot lesser price. Xiaomi has been severely criticized by American media for completely copying the designs and design elements from the likes of Apple and Samsung but it seems that the local Chinese customers do not care much about these accusations. It is important to understand that the Chinese market operates under a different set of standards than the U.S, where originality is one of the primary parameters people look for in their phones. However, in China, which also respects originality and intellectual property, the essential judging parameter is pricing/value for money.

The fact that companies like Xiaomi are finally beginning to understand the dynamics of smartphones market and the art of releasing phones with interesting specs at reasonable prices is clearly evident. Fancy this, Xiaomi’s latest flagship costs around $320 only in comparison to Samsung Galaxy S5 that is worth $600 in spite of having similar specs. Additionally, the competition in the Chinese markets doesn’t stop at Xiaomi but extends from companies like Huawei and Lenovo. These companies are also becoming a major source of worry for Samsung on a global stage with market share inching closer to the South Korean giant.

India is also beginning to cause worry for Samsung

While troubles are brewing in China, the second largest smartphone market in the Asian region i.e India also does not hold good news for Samsung. As per recent survey, Micromax, an Indian phone giant, has overtaken Samsung as India's leading handset vendor, capturing 16.6% market share in the April-June period as against the Korean major's 14.4%. Even though, in terms of standalone smartphone sales, Micromax is still the number two vendor, its strengthening position is an indicator of unfavourable times for Samsung.

In order to make things more competitive and cut-throat, Xiaomi is already making strides into the Indian markets with its flagship devices that have gained huge traction in the neighbour country. Also, one of the surprises in the Indian phone markets was Motorola which created a stir among the customers with its X/G/E devices and now, as a part of brand Lenovo it is expected to build a strong base in the high volume India smartphone market.

Takeaway

Though the CEO of Xiaomi, Mr Lei Jun has been quite criticized for wearing a Steve Jobs like demeanour to the extent of copying his stage quirks, the fact remains that this emerging giant has created a big disruption. The disappointing Q2 results reported by Samsung could be an initiation of worst times to come unless the company makes a string of notable changes in its product portfolio. The losing grip on hitherto dominated Asian markets should be followed closely by the investors of Samsung.

About the author:

Riddhi Kharkia
A practicing Chartered Accountant based out of India. I have keen interest in analyzing tech stocks that are driven by value.

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