Samsung profits slump by 60%: Fall of another mobile conglomerate in the making?

Over the past year, Samsung – the ‘reigning phone vendor’ – has started to lose its sheen. The Korean company’s earnings preview clearly highlights the rapid decline of its mobile business as poor sales of its top-end Galaxy smartphones hurt its component businesses, such as advanced display called OLED, and heavy marketing costs undermine profits.

This has hit the company’s third-quarter operating profit really hard – a massive 60 percent drop compared to a record-high 10.2 trillion figure last year. This is the lowest profit the company has seen in over three years.

In a statement, Samsung said, “Smartphone shipments increased marginally amid intense competition. However, the operating margin declined due to increased marketing expenditure and lowered average selling price (ASP) driven by reduced proportional shipments of high-end models coupled with price decreases for older smartphone models.” So it will have to curb needless expenses –  cutting down on the money used in taking potshots at other manufacturers might be a good start.

With reports of Samsung losing its market position in China and India, this doesn’t come as a surprise. Going by the latest numbers from IDC, Samsung’s smartphone share in India has dipped from 31% in the second quarter last year to 29% in the same period this year. As per estimates, Apple is the market leader in the Rs 30,000-plus smartphone segment in India, controlling almost half the market followed by Samsung with around 25 percent share, reports The Economic Times.

Samsung has been facing hiccups in the premium as well as low to mid-range phone segments, owing to competition from Apple, HTC, Xiaomi, Micromax and several others. Also with Android One coming into the picture, Samsung phones look a lot more expensive and underpowered in comparison.

Its 2013 flagship Galaxy S4 failed to impress and Samsung had to re-strategise to quickly launch its next flagship smartphone – the Galaxy S5. Though the device reportedly did better than the Galaxy S4 (which was a total disaster), it didn’t manage to set the pace, rather turned out to be disappointment with gimmicky features.

The quick-release of the Galaxy S5 did little to turn Samsung’s fortunes, as it was an incremental upgrade with no real groundbreaking features. On the other hand, companies like Micromax and Xiaomi have been canabalising Samsung’s sales in India and China respectively, by offering similar features at competitive prices.

In fact, companies like Xiaomi, Motorola and Micromax have almost dethroned Samsung in the budget segment, at least in India. Though Samsung had announced a major price re-structuring, it’s yet to show any positive results, so far.

Now, this isn’t a Samsung thing, but blame it on the openness of the Android platform. The low to mid-segment is inundated with phone makers who are ready to offer similar or even better hardware at more affordable prices. In price-sensitive emerging markets, such as India and China, “value for money” is what dictates most buying decisions.

Another problem is that Samsung has its hands in too many pies. Unlike Apple, which puts all its energy focusing on one or two smartphones a year, Samsung has a multitude devices catering different users, without any significant distinguishing features.

Now, this is something that may have worked for Samsung in the past, but now seems to backfire. Going by the typical price brackets of Rs 5k, Rs 10k, Rs 15k and so on, there’s a Motorola or Xiaomi alternative that’s arguably better than a Samsung. This is where Apple has an advantage with its unique OS and a loyal fan following. Moreover, Samsung’s Note series smartphones are no longer a fad, as phablets today are a dime a dozen.

In the premium range, the company is trying to fight it out with Apple using its last trump card – the Galaxy Note 4. In India, it is believed to go all out and try to make its presence felt all through the festive season with intensive marketing and advertisements. The ET report also states Samsung and Apple will together spend roughly 200 crore on ads promoting their key four products during Diwali. It is further believed that Samsung will spend 100 – 120 crore promoting its Galaxy Note 4 and Galaxy Alpha, while Apple will pump out around 80 crore on its iPhone 6 and iPhone 6 Plus launch in India.

However, Samsung’s devices need a bigger push as Apple is known to create instant media hype owing to massive interest in its products. Samsung also needs to tackle issues such as the slowing demand for high-end devices, due to the general norm that these products bring only incremental advancements. The company has to really gear up in the low to mid-range segments and focus on devices that will help it gain edge over others in the sub 10k and sub-20k price brackets. The Indian festive season, followed by the holiday season across the world will be a crucial period for the company to regain its form.

In order for this to happen, Samsung needs to pull its socks to get the pricing of its products right and, most importantly, put some serious thought into adding features consumers really need to avoid going the Nokia or BlackBerry way.