It is becoming seemingly impossible to predict the future of a brand or company in the smartphone market. Just when the numbers of a company become dull and its future looks pale, it comes up with a new launch to reclaim its position. If you followed our articles on smartphones closely last month and the month before, you would have understood that this festive season the markets are already flooded with enormous numbers of smartphones from every company in this segment and each of them packed with loads of features to entice consumers. The obvious scenario would be that this year the multi-brand retail stores would hardly be left with shelve space, after displaying the new smartphones, for any older versions or not-so-smart phones.
Just when Samsungâs (SSNLF, Financial) smartphone future started looking dull from its Q3 reports the company dropped the new salvo in the form of launching two new mid-section smartphones âĂ Galaxy A3 and A5 to reclaim its foothold in the face of strong competition from its Chinese peers. Let us take a quick look at how the company positions these models in the market and how that will impact the business figures of Samsung.
The new stars in the Samsung smartphone galaxy
Last Friday Samsung unveiled two mid-segment smartphones â Galaxy A3 and Galaxy A5 âand served a fitting answer to the stiff competition offered by its Chinese peers. Though it is targeted at the mid-segment customers, it sports a premium design with a metallic finish. The Street is eyeing this move of Samsung as a bid to strengthen its hold as the worldâs biggest smartphone maker.
The all-new A3 and A5 will be sporting a full-metal body and claims to be the thinnest smartphone ever launched to date. The display size will be the same as that found in the premium category Galaxy S5; however, the screen resolution would be lesser than the premium handset.
Though Samsung has not yet disclosed the numbers on the price tag, last Friday it stated that the new phones will hit the shelves in China first in November 2014 and then will soon follow suit in other select markets. This clearly signals that Samsung is all geared up to take the smartphone war with the Chinese competitors right into their home territory, but what will be the outcome of the war, in the wake of the phenomenal growth of Xiaomi on its home turf, is yet to be seen.
The announcement, combined with hopes for an earnings recovery and bigger dividends, pushed Samsungâs shares to a two-month high in Seoul in midday trade on Friday.
Samsungâs equations
The new launch came in within days of reporting by far the worst quarterly numbers in the last three years. Samsung reported a drop in its earnings from its handset division to 73.9% from a year ago. As we had illustrated earlier about Samsungâs managementâs intension to revisit its strategy in our article titled: âSamsung On Its Way To Restructuring Its Production Strategyâ. This seems to be the first set of answers to its strategy restructuring.
But the question is will this move be the salvo for the company? Notably Samsung might have changed the outer finish to more metallic unlike its all plastic predecessors, but the display resolution and other features are getting a miss since it is targeted at mid-section customers; however, companies like Xiaomi are offering feature packed phones at a price tag to suit the pockets of the same mid-segment customers. So will Samsung be able to lure customers away from the likes of Xiaomi with just a metallic finish and its name? I doubt it because this consumer segment is less brand conscious and more "feature-compared-to-price" conscious going by their buying practice.
However team Samsung feels that they should have done this strategy rethinking a bit earlier but better late than never. âFor our mid to low-end smartphones we will enhance product competitiveness by differentiating our displays and materials as well as upgrading camera functionality,â Senior Vice President Kim Hyun-Joon told analysts on Thursday.
Our take
The global smartphone leader is busy regrouping its strategies as it has already lost considerable amount of market share in annual terms for the third straight quarter in July-September, according to Strategy Analytics. The new iPhones from Apple (AAPL, Financial) has already taken the top slot in the premium category of smart phones while the Chinese smartphone giants Lenovo (LNVGF, Financial) and Xiaomi are already catching up rapidly in the tier 2 and tier 3 segments of smartphone consumers. Samsung might have to bite the dust of lower margins going forward to preserve market share and growth volume, according to the street buzz.
But a total recovery by mid-2015 seems to be a far-fetched dream for Samsung. In order to regain its financial numbers considerably Samsung would need to pack its smartphones with better features at an affordable price and also do a lot of cost cutting in its operation and production area. Only then it can again reclaim its throne in the smartphone arena. But again the whole restructuring process has to be done in phases which will need some time to be implemented; until then it would be best to wait and watch for the moves of the company and restrain from taking fresh investment positions till then.
