The evolution in the mobile phone space that was initiated by Apple (NASDAQ:AAPL) changed the lives of the players – making some extinct and making some extremely relevant. While Nokia (NYSE:NOK) lost all its glory and got acquired by Microsoft (NASDAQ:MSFT), Samsung (SSNLF) came out at the winning end and took over the world to become the biggest smartphone maker.
The Korean giant has had several glorious years, and made great quality technology available to those who couldn’t afford to get that hands on Apple devices. Powered by Google (NASDAQ:GOOG) Android OS, the company made the impossible possible. But has the tech mammoth lost its edge? Well, it seems so. Here’s why.
- Warning! GuruFocus has detected 4 Warning Signs with SSNLF. Click here to check it out.
- SSNLF 15-Year Financial Data
- The intrinsic value of SSNLF
- Peter Lynch Chart of SSNLF
Emerging smaller players eating up market share
Emerging Chinese players are giving Samsung a run for its money. Lenovo (LNVGY), Huawei and particularly Xiaomi (maker of the very successful Mi3 smartphones) are making the market situation very difficult for their bigger peer. These manufacturers are focusing on delivering great specifications and very affordable rates, making them easier for anyone and everyone to afford. At the same time these players are making sure the handsets are good looking and in no way anything less than what Samsung has to offer.
According to several analysts, these three Chinese brands have made Samsung their target, to overthrow the company from the throne of the world’s biggest smartphone player. The strategy is not new. In fact Samsung itself had followed up the moves to overtake Apple and rule the market. As the saying goes, history repeats itself. Only the position of the players have changed. Samsung’s place has been taken by the upcoming Chinese wonders and Samsung is in Apple’s place. It would be interesting to see if the consequences of the strategy remain the same.
The Galaxy maker is also having a really bad time in India. The country is one of the most promising markets for smartphones and was under Samsung’s rule for long. However, local Indian phone makers are winning small battles against the giant. Among the prominent ones, Micromax and Lava (maker of Intel-powered Xolo handsets) are gaining great momentum in the market and speedily overtaking Samsung. In fact, recently there was news that Micromax has surpassed Samsung to become the biggest mobile handset vendor in the sub-continent. The Canvas series from Micromax is equivalent to Samsung’s Galaxy series and has become immensely popular. The Indian handset maker stresses value for money and provides better handsets at cheaper rates, compared to Samsung.
Samsung is no Apple
While Apple was able to withstand the blows from Samsung, the same might not be true for the Korean giant. Back then, when the Galaxy series was beating iPhones in terms of volumes, the market was a lot different. Apple had always stressed quality and user experience, and still does, and because of these qualities, it became the leader of the space, becoming capable enough to ask for high prices for its offerings. The company always wanted its devices for classes and not for masses.
Samsung’s strategy was just the opposite. The company banked on quantity instead of quality and wanted a larger customer base. Thus by making smaller profit from each unit, and by selling more of such units, the company became the top player. After reaching these heights, Samsung altered its strategy slightly and started targeting the cream of the market – the segment that Apple ruled. However, because of consumer perception and comparatively inferior quality products, things didn’t turn out the way Samsung wanted. Apple still commands the top strata of the smartphone buyers and enjoys huge margins. Because of the abnormally high profit margins from its devices, Apple could not only sustain but also flourish over the years. Samsung doesn’t have these advantages.
The new smartphone players are eating up Samsung’s market share and there is not much the company can do about that. In India, Moto G clearly defeated similarly priced Samsung handsets, selling more than a million units in less than six months.
The only way out for Samsung is to forget the top layer of customers for the moment and go back to the basics. Unless the company manufactures and delivers great phones at low rates, like it used to at one point, it will be pushed into oblivion. For some this might be too strong a claim. But, I strongly believe that is possible. If Nokia could face such consequences, Samsung can too. The smaller upcoming players are sacrificing margins to kill competition. Samsung needs to do the same. The company has greater years of experience and huge success to back it. If it wisely puts all that to use, it can emerge victorious. Else, it’s another Nokia in the making.