Samsung is on top of the smartphone world right now, but is in danger of loosing a portion of its market. Samsung has the largest share of the smartphone market pie, and the largest share of the smartphone makers’ profits, at US$8.3 billion. But Samsung market share actually dropped by 3% year on year, and Samsung itself has warned to expect falling smartphone sales.
While Samsung continues to push the limits of hardware and software, there is one battleground it appears to be losing, and it looks like the tech giant is aware of this. Samsung has reached the number one spot by being able to offer a dizzying array of models at all price points. Samsung literally has a smartphone for everyone. No major manufacturer can match Samsung’s broad product line. Ironically, challenging Samsung’s broad range of smartphone offerings is not one of their major competitors but dozens of smaller manufacturers and local brands.
If you look around you, everyone you know probably already has a smartphone or two. You can expect current smartphone owners to buy something new every year or two. The remaining growth area in smartphone sales really lies with convincing people who still use feature phones to make the jump to smartphones. Catering to this market will be smartphones which cost US$300 or less.
In developing countries where smartphone penetration is still relatively low, a lot of new local brands selling off-the-shelf devices are launching models with much lower price points than Samsung’s offerings. At the same time, these low cost models pack better hardware. Collectively, these companies are also able to challenge Samsung across the behemoth’s entire product line.
One of Samsung’s key strategies for growth in 2013 was to expand the phablet market. To achieve this, the company launched the Samsung Galaxy Mega 5.8. This move brings the Android phablet down to a lower price point. Samsung’s lower cost phablet features a 5.8-inch qHD display which has a low 189 pixel per inch (ppi) resolution, but is still reasonably sharp. Powering the Galaxy Mega 5.8 is a 1.4 GHz dual core processor, on a Broadcom chipset.
Nearly coinciding with Samsung’s launch, a flock of 5.7-inch phablets have been released. One example of this is the MyPhone Agua Iceberg. The Iceberg is priced at two thirds the retail price of the Samsung Galaxy Mega 5.8, but it Iceberg packs much better hardware. The Iceberg has a 5.7-inch, 720p display, which has a much sharper 258 ppi. Inside, it has a quad core processor on a MediaTek chipset, built on modern 28 nanometer technology. The chipset also has a very competent PowerVR 5XT graphics chip. The Iceberg benches nearly twice as fast as the Galaxy Mega 5.8. Ironically, the MyPhone Agua Iceberg is the more premium looking device, with an aluminum case. To make matters worse, the Iceberg is actually an expensive option. Other models with nearly identical specifications, only with plastic cases, are priced half as much as the Galaxy Mega 5.8.
It is the same across Samsung’s entire product line. Samsung’s low cost 7-inch tablet, the Galaxy Tab 3 has not been improved much from the previous model. It still sports the same 1024 x 600 resolution display it had three years ago. Rather than improve its 7-inch tablet, Samsung has focused on reducing the selling price. Despite Samsung’s best efforts, its low cost 7-inch tablet cannot match the price of lower cost competition. Alcatel offers a more powerful tablet with 720p displays selling for 20% less than Samsung’s offering. The Samsung Galaxy S4 mini, has to compete against much cheaper 4.7 and 4.8-inch smartphones with 720p displays and quad core processors. Ironically, these cheaper phones also come with Super AMOLED displays. This downward push in price has seen the Android smartphone hit the US$50 mark.
Some of these devices have made it across the pond. A variant of the MyPhone Agua Iceberg, the BLU Life View, is being brought into the United States by a small Florida based company. The impact of these devices is much less in the USA and Europe. The big difference between the invasion of these low cost Androids in the developing countries, and in the United States and Europe, is marketing. In the United States and Europe, these lower cost devices are sold mainly online and with limited advertising. Not likely be noticed by the mainstream consumer.
In Asia, product launches of these locally branded phones are made at lavish launch parties which dwarf Samsung’s own launches. Long lines of buyers patiently wait for the new offering, like the scene you may see outside an Apple store after a new iPhone launch. The movie actors and athletes hired to promote these low cost devices are locally more prominent than Samsung’s own brand ambassadors. The local brands support their phones with physical stores and service centers. These phones are now also being offered by local carriers on plans.
Samsung will not likely be able to stop the onslaught of lower priced competition. It is a big pie, and someone is always willing to take a smaller profit margin to have a share of that pie. The Android market is entering a new phase, which will not only affect Samsung, but also the other top tier manufacturers as well. Samsung will weather this storm transforming into a premium smartphone manufacturer. Other Android smartphone manufacturers are not likely to be so lucky.