Samsung, Apple face the same smartphone slowdown


The new Galaxy S III smartphone, produced by Samsung Electronics Co., is displayed for attendees during the global launch event in London on Thursday, May 3, 2012. The Galaxy line of phones led Samsung’s strong sales. (Chris Ratcliffe/Bloomberg)
January 25, 2013

Samsung may have outpaced Apple in smartphone sales last quarter, but it’s facing the same slowdown risks as its biggest competitor.

Both companies are battling to dominate the world’s smartphone market. In places such as the United States, nearly everyone who’s interested in buying a smartphone already has one, decreasing demand overall. But the smartphone revolution has yet to hit the world’s most lucrative markets such as China and India in full force.

That leaves smartphone companies in a bind. High-end devices provide the lion’s share of smartphone profits, and are still too expensive to appeal to customers outside of the major cities in the world’s most important markets.

Samsung, overall, is well-positioned to navigate this split. The company is already the market leader in China and picking up more customers across the globe, thanks to its strategy of offering a wide range of devices apart from its premium iPhone competitor, the Galaxy S III. Apple, meanwhile, offers older versions of its phones at lower prices rather than specifically making cheaper phones.

Analysis firm International Data Corporation estimates Samsung holds around 29 percent of the market to Apple’s 21.8 percent. At the same time last year, Samsung had 22.5 percent of the market and trailed Apple by one percentage point.

Mobile communications lead Kim Hyun-joon said in a call with analysts that Samsung plans to stick to its gameplan and push “our product portfolio from [the] high to low end” in emerging markets to hold its position.

Still, the Korean firm gave conservative guidance for smartphone sales next quarter, traditionally a weak quarter for all phone makers — news that did not sit well with investors. Despite the fact that Samsung increased its profit 76 percent in the last quarter, the stock hit a two-month low in Seoul trading Thursday.

One major threat Samsung faces in China is from the country’s own smartphone makers, who sell smartphones at even lower prices. Two Chinese smartphone makers, Huawei and ZTE, are now among the top five smartphone makers in the world, according to data from IDC.

Price is not the only factor for Chinese consumers — something made clear by looking at Apple, which only markets high-end devices, and saw 67 percent revenue growth there in the past year alone. And neither Huawei nor ZTE is thought to have the engineering chops — particularly when it comes to software — that Korean or American companies have, but both have made moves to release higher-quality smartphones in an attempt to erode Samsung’s dominance.

In other words, the race is on in China to find the right balance between quality and price as the market matures. Even Kim noted the threat, in passing, on Thursday’s call. “Chinese vendors are growing fast,” he said.

Related stories:

Samsung sets sights on corporate customers

Apple misses earnings estimates

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Hayley Tsukayama covers consumer technology for The Washington Post.
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