Samsung has announced a preview of the Galaxy S5 on February 24th at Mobile World Congress in Barcelona. Sort of. Invites have gone out to the press for what Samsung is describing as Unpacked, Episode 1 with a large 5 emblazoned on the invite (twice). All a big tease. Might it backfire?
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The announcement has been picked up around the world. A Galaxy launch is a big event. But there is a hint that this time round Samsung is desperate to get a new device out there and to use the attendant publicity to drive sales in a very tight market. Samsung needs this more than we do.
In the middle of last year, not long after the S4 launch I suggested Samsung had peaked in smartphones. The evidence since then has been pretty compelling. Samsung’s sales seem to have stalled more dramatically than Apple’s.
Samsung Electronics Co. (005930) posted its first profit decline in nine quarters as new Apple Inc. (AAPL) iPhones won over high-end handset buyers and models from cheaper Chinese producers lured budget customers.
It’s also clear that the Samsung pricing cascade is running out of steam. You have to go back some years, to the general consumer electronics industry and in particular TVs to see this cascade at work. Remember it?
Launch at a high price/high margin to soak the early adopters, discount to acquire market share; and when that stops working, launch a new generation product. Soon after the S4 was available the price differential in different parts of the world exceeded $300 as they played this cascade out in different markets.
Now Samsung needs sales, not least to support its vast manufacturing capacity. According to Daewo Securities, “Samsung shipped 13 million units of its S4 in the fourth quarter, down from 17 million in the previous three months.” That’s a reduction of 4 million units in the buying season.
Because of its pricing model, Samsung is now in danger of ceding high margin sales to Apple more generally.
There will be novelty in the S5, however. Leaks in January suggest Samsung will sport a new UI in the S5, possible powered by Google NOW. The two companies have been working more closely lately and more product integration would be no surprise. Samsung has also been working hard on its branding, despite being caught out manipulating social media reviews of competitors. I covered some of that brand investment here on Forbes.
Yet it is in software and services integration that Samsung still lags. Software has been named a new national priority for Korea, a move reported by The New Yorker, recently. In the software and services arena, in promoting service revenue in place of hardware margins, Samsung is a decade behind Apple. The strain of being hardware first is beginning to tell.