Samsung’s Q4 2013 numbers saw the company’s first profit decline in nine quarters. While the smartphone manufacturer is still comfortably in profit, these numbers and others highlight a need for change inside Samsung’s smartphone operation.
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The challenge to address in 2014 is a simple one. While Samsung still has significant market share in the Android market, the average price per handset is dropping. The South Korean company faces financial pressures at the low end of the market from numerous manufactures, overall market share is under attack from the rise of handsets in BRIC countries using the Android Open Source Project, and the market share at the profitable high-end of the range has halved, from 40% to 21%.
How Samsung responds to this challenge will be key to any continued success. The pressures above are very similar to those experienced by Nokia in 2008 after the successful launch of the Nokia N95, and serve as a warning to Samsung today.
At its launch in 2007, the N95 was as cutting-edge as the Samsung Galaxy S4 was last year. The N95 sported the largest smartphone camera, it was one of the first phones to carry a GPU, it had an online app store through the N-Gage platform, and had ‘lightning-fast’ 3G connectivity. In short it was the phone to beat. With subsequent handsets, Nokia carried on playing the specification games to go ‘one better’ than the N95, but that handset was the last real star of Nokia’s Symbian handset.
Nokia’s market share continued to be strong, but it slowly lost ground to Android and iOS. The in-store prices for handsets was under pressure, and revenue per handset fell. In broad strokes, Nokia traded profits for market share.
There came a point where they could no longer do that, the market share dropped off a cliff edge, and newly installed CEO Stephen Elop was left to play with a depleted hand. Nokia’s transition to Windows Phone, the slow recovery of market share to 10%, and the subsequent sale of the Devices and Services division to Microsoft could be seen as a successful recovery from the weak position the Finnish company found itself in, or as the last moments of a dying company looking for a soft landing. The debate will continue in smartphone and business circles for a long time to come. Compared to other smartphone manufacturers of the same generation (Panasonic, Ericcson, Palm, and BlackBerry née Research in Motion) Nokia is still around, and the remaining divisions in the company after the sale to Redmond are all profitable.
But they are no longer the force they once were.
With the Galaxy S4 not quite matching the success of the Galaxy S3, Samsung has crested a wave in the smartphone cycle. How they deal with the upcoming launch of the Galaxy S5 (rumored to be on Feb 24th at Mobile World Congress) will show where they think the next wave is going to be.
I hope that the Galaxy S5 is more than an iterative step forward from the Galaxy S4. Samsung need to change the language of their smartphone platform. If the momentum carries the Galaxy S5 forward with slightly better specs, slightly lower cost to the consumer, and reliant on Samsung’ advertising spend to keep the sales high, then I fear we have passed “peak Samsung” in the Android world.