What happened to Finnish multinational communications firm Nokia (NOK, Financial) in the last decade seems to be happening now with South Korean tech conglomerate Samsung (SSNLF, Financial).
Having been the dominant mobile-phone maker in the last decade, Nokia failed to catch up on the smartphone bandwagon led by the iPhones and the Moto Razrs causing its swift downfall in the mobile market segment by the end of the last decade. On the contrary, Samsung started taking off from where Nokia had crashed. By launching the Galaxy S2, Galaxy S3 and Galaxy Note, Samsung surged ahead to become the leading smartphone maker in the world even biting into Apple’s success.
However recent Q4 results from both the technology giants have shown, that Nokia after selling off its mobile-phone business to Microsoft (MSFT, Financial) in April 2014 at a staggering 5.6 billion euro sale has consolidated its position in the core networks business which has surged 8% year over year in net sales majorly due to positive wave noticed in North America.
On the other hand, Samsung has registered a decline in net profits by 27% to $4.89 billion in the final quarter of the fiscal year 2014, when compared on a year-over-year basis. Adding to its woes, intense competition from Chinese manufacturers has also led to its mobile phone sales drop by around 23% year-over-year to around $2.27 billion.
Let’s dig in further to understand how Samsung is slowly moving out of its lead position in the face of continued headwinds from China. And also let’s assess whether Nokia is back on track after selling off its mobile business unit for good reasons.
The Nokia comeback
Offloading its mobile-phone business to Microsoft for 5.6 billion euro sale, has led to Nokia concentrating on improving its network business which seems to have really paid off well for the tech giant.
In fact, Ericsson (ERIC, Financial) and Huawei, who are competing with Nokia in the network space, were left behind as the Finnish giant clocked a 35% growth with operating profit rising from 397 million euros to 470 million euros ($530 million). While Nokia witnessed modest growth of 4% in Africa, Middle East and Europe, it saw net sales up by 95% in North America where its core businesses grew phenomenally during the quarter. However, Nokia has not made any major inroads into the Asia Pacific markets as it grew by only 1%.
Buoyed by its performance, the Finnish tech multinational’s management has proposed to increase its dividend from EUR 0.11 a share to EUR 0.14 a share for 2014 to be paid to the shareholders.
Rumours of a merger with Alcatel-Lucent also seem favourable for Nokia as it will set to get a higher market share in the coming years.
Samsung gradually on the verge of being dethroned
Apple (AAPL, Financial) and Chinese manufacturers such as Huawei and Xiaomi are now haunting the glitzy models of Samsung in the mobile segment. Facing a revenue decline for the first time in the last three years, Samsung is staring at a tough road ahead in the mobile segment. Demand for its smartphones are on the downside, the lack of fresh, innovative products after the Galaxy Note have now led Samsung to stare at a similar fate that Nokia had faced about eight years ago.
While majority of its competitors including Huawei, LG, Sony (SNE, Financial) and HTC have all been riding the smartphone wave and registering impressive growth, Apple delivered the knock-out punch for Samsung in the fourth quarter by taking the number one position in the U.S. where Apple’s devices accounted for about 50% of the total smartphone sales for the quarter. Also as per information provided by IDC, Xiaomi brushed Samsung aside to become the top selling smartphone vendor of China in 2014.
With Samsung now betting high on the Galaxy S6 and Galaxy S Edge, the South Korean smartphone manufacturer is riding on a thin line to maintain its dominance in the rapidly changing smartphone world with other rivals quickly catching up in terms of improved mobile features.
Final thoughts
Even though Nokia lost immensely on its own turf, it has been steadily driving its way up to the top to regain its dominance by concentrating more on the networks business which might be giving some breathing space to the company. Also, Nokia’s move to emphasise on its research and development is going to augur well for the company from "The Land of a Thousand Lakes."
Meanwhile, Samsung has to face the stiff competition from Apple and Chinese manufacturers in the geographical regions (U.S. and China) where it has ruled until the past quarter results were out. Truly, dependence on just two major product releases such as the Galaxy S6 and Galaxy S Edge are not likely to be favorable to the South Korean tech giant, and thus it’s time to look for some more concrete strategies from Samsung’s top brass.
