Apr 29 2014, 3:23am CDT | by Forbes
Samsung’s latest flagship smartphone may be suffering from camera glitches , but new, third-party numbers suggest the Galaxy S5 has actually been selling faster in its first week-and-a-half than its predecessor, the S4.
The numbers suggest that Samsung may be managing, in the short term at least, to defy a long-projected slowdown in the market for high-end phones. Peel, a smart remote app that’s been preloaded on both the S4 and S5, says it had been activated on 1 million Galaxy S5 phones 11 days after Samsung launched the device on Friday, April 11.
It took 16 days for it to reach the same milestone on the S4 last year. Although Android users can also download Peel, the app says that around 70% of its activations come from pre-loaded devices, making it a rough proxy for Samsung’s own device sales.
The numbers add credence to comments from Samsung executive Hankil Yoon who recently said the S5 would outsell the S4.
Samsung’s investors are watching the company closely for signs of how sales of its flagship devices are faring. The world leader in smartphone shipments is due to unveil its first-quarter earnings on Tuesday morning Seoul-time, and earlier this month forecast operating profits of between 8.2 trillion won and 8.6 trillion won ($7.9 billion and $8.3 billion).
That marks a low-single-digit decline from a year earlier, with the slowdown widely attributed to a saturation in market for high-end smartphones in developed markets like the U.S. Earlier this week mobile chip maker Qualcomm also reported a break to its 14-quarter winning streak of higher profits due to a slowdown in chip sales.
High end smartphone makers are feeling the pressure as consumers in developed markets demand ever more sophisticated (and costly) features in the latest phones that eat into their profit margins.
One result is that the Galaxy S5 has an “astronomical” bill of materials, at $251.52, according to researchers at IHS Technology, despite lacking any revolutionary new design approaches. The iPhone 5S’s bill of materials stands at $207, according to IHS.
One advantage that Samsung has over Apple is its broad range of devices at the lower end of the smartphone spectrum. Cost, according to analysts at IDC , will be the “key difference maker” in driving smartphone growth over the next year.
Samsung’s biggest worry on that front isn’t Apple but Chinese vendors like Xiaomi, Huawei and Lenovo, which bought Motorola earlier this year for $2.9 billion. On Wednesday Xiaomi announced that it would be entering 10 countries this year, including India, Brazil and Russia, and that it plans to ship 100 million phones next year.
Samsung sold just under 300 million smartphones in 2013, giving it a 31% share of the smartphone market, according to Gartner, up from 30% in 2012. Apple sold 151 million units while Huawei was third in the global rankings with sales of 46.6 million units.
Smartphone vendors sold 968 million devices globally in 2013, according to Gartner, up 42.3% from 2012.
Analysts say Samsung needs to respond to shifting market preferences by building attractive midrange smartphones with simple user interfaces, to help it stand out among competitors like Xiaomi who also boast phones with large screens and high-density pixels.
“Samsung will do whatever is required to maintain their position,” says Thiru Arunachalam, founder and CEO of app Peel, pointing out that when Samsung launched its first Galaxy Tablet two years ago for $279 and was undercut by Amazon’s $199 tablet offering, it launched a cheaper tablet about three months later. “They have the ability to compete in the low end market as well. But overall I think the Chinese OEMs are going to be big players.”
Peel, which has 60 million users in the U.S. and Asia, has developed close ties with Samsung over the last three years. Arunachalam says his company was the driving force behind Samsung’s decision to put infrared sensors into its S4 and S5 phones to allow Peel’s remote service to work with its smart TVs.
The prospect of a saturated, high-end market doesn’t worry the app’s founder. “For us it’s become an accordion,” he says. “I’d not expect overall saturation of smartphone market for a few more years because periodically every human being should have a smartphone. We’re far away from that.”
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