A fourth quarter profit warning has been issued by Samsung, after which the company’s stock fell — but that could only be part of the company’s struggles. While Samsung’s CEO believes that Samsung will be the number one phone maker for the next decade, it appears as though the industry as a whole is flagging. How can Samsung counter the upcoming smartphone fatigue?
Samsung provides chips to other manufacturers such as Apple: and that’s a problem right now. As other manufacturers are pulling back towards the economy, Samsung is getting hit even harder by the economic uncertainty. Rather than only having to worry about its own consumer products, it has to worry about the compounding effect of spending in general being pulled back. Samsung reported that its customers currently have high levels of inventory for its products, and consequently aren’t making additional purchases.
That’s one problem, but there’s another: smartphone sales are also decreasing. Smartphones are selling less frequently, and Samsung spent a lot of advertising money on its smartphone branch without seeing significant returns. With smartphone sales flattening, the company simply hasn’t been able to achieve its targeted revenue.
It isn’t just Samsung that’s experiencing difficulties. LG recently released a lower than expected profit report, and Apple has been struggling with smartphone sales as well. In general, smartphones are selling less frequently.
There are a few reasons for this, but much of it comes down to smartphone fatigue. For over a decade, consumers have been interested in getting the best possible smartphone every year, upgrading their smartphones on a regular basis. Today, consumers are more likely to hold onto their smartphones for as long as they can.
As handset prices have increased, many consumers have pulled back on what’s viewed as a luxury expenditure. Having a more expensive smartphone is less of a status statement, and higher quality phones also mean that consumers are able to do all they want with their phone for much longer. A large sequence of phones being released has made it difficult for consumers to differentiate between product lines, and a lack of exciting new features is making the prospect of upgrading less exciting.
More expensive smartphones have also led to many consumers purchasing their smartphones through their cell providers, which means they are on a structured upgrade schedule: they upgrade when their cell provider tells them they can, rather than upgrading of their own choice. This can lead to them putting off their upgrades until a newer line up comes out.
And there’s competition. Google’s Pixel has also been eating into Samsung’s profits as it grows, with many people moving from Samsung to Google. While this isn’t, in and of itself, contributing a significant amount to the drop in profit, it does indicate that competitors may be growing. What was previously a primarily Samsung and Apple market is becoming split among smaller competitors.
Samsung is still optimistic that it will maintain the lead as the largest smartphone provider, but customer fatigue is real. Part of Samsung’s profit issues were compounded by increased advertising, which didn’t manage to bring in additional sales. Moving forward, phone providers may need to reduce the volume of phone generations they’re putting out, pull back on phone models, and introduce lower-priced phone models rather than more expensive ones.
Many phone providers are also working on innovation: trying to find new ways to improve upon the existing technology, rather than releasing very similar phones generation after generation. In the past few years, phones have largely been differentiated by the number of cameras they have, authentication technology, and screen size: while these are all important to consumers, none of them are dramatically different.
Samsung’s earnings report has already caused a significant drop in share price, but it’s not unexpected and it hasn’t lost them much ground in their market. The industry as a whole is seeing a slump, primarily due to the economic and the way that consumers are now approaching their electronic devices. Samsung remains confident in its future and may need to revise some of its marketing and production strategies.
Regards,
Ethan Warrick
Editor
Wealth Authority
