New low cost smart phones could end Samsung’s domination of the market segment as the company forced to slash prices and accept lower margins at its mobile division.
The company has been feeling a pressure from companies like China's Huawei Technologies Co Ltd and Xiaomi Inc in the mid-to-low end of the market.
The Galaxy series of Samsung had seethe Korean company bask in the limelight of being the largest seller of smart phones. However that domination seems to have reached a crescendo and is being seriously challenged. Samsung would no longer be able to make billions of dollars simply by competing with Apple Inc in the premium mobile market.
Apart from the price challenge that the new companies are giving Samsung in the mid and low price segments, the fact that the company has been stuck with the same Android operating system used by its low-cost competitors, who are producing increasingly-capable phones of their own, is one of the more serious factors that would see a downfall of the Samsung market leadership position.
“As soon as low end hardware became 'good enough,' there would be no reason to buy a premium brand and this has been evident for any premium Android maker for a long time now,” said Ben Thompson, an analyst at Stratechery.com in Taipei.
The pressure that the mid and low priced segment of smart phones was exerting on Samsung became evident when the company reported a nearly 5 percent fall in the margins of the company’s mobile division. The margin in the second quarter for the division fell to 10.6 percent from 15.5 percent a year earlier during the same period. This fall in margin of profit was despite the April launch of its critically acclaimed Galaxy S6 range.
This competition in the mid and low cost segment of smart phone is being taken advantage of by Apple Inc. analysts are of the view that the company would earn 90 percent or more of the industry's profits even as the U.S. giant's smartphone sales in its last financial quarter fell short of market expectations.
Announcement of plans to launch new larger-screen premium phones as well as more bargain-priced handsets was made by Samsung last week as the company tries to maximise profitability and market share.
Analysts are of the opinion that Samsung should fight out to maintain its position in a market segment that generates piles of cash and drives sales for its components divisions. However in the absence of a major technological breakthrough, Samsung would continue to trail Apple Inc and analysts feel that the Korean company would not be able to compete with US company in the premium market based on hardware.
Reacting to the increased pressure in the middle and low cost segments, Samsung announced a "flexibly adjustment" of the prices of its flagship Galaxy S6 and S6 edge models to boost third quarter sales. The company has already reduced retail price of S6 edge smartphones in South Korea by around 100,000 won or $85.46 in July.
New price-competitive product launches are also expected by the company in the mid-to-low end of the market.
(Source: http://in.reuters.com)