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Summary:

First HTC and now Samsung has investors concerned. The top Android handset maker didn’t impress analysts with its quarterly earnings amid thoughts that smartphone sales growth in the future could be limited. Here’s why.

Galaxy S 4 White

Long ruling the Android galaxy, Samsung’s smartphone sales may have peaked. That’s the message being taken away from the company’s second quarter earnings as Samsung reported operating income of 9.5 trillion won ($8.3 billion) compared to the 10 trillion won that analysts were expecting. Speaking to Bloomberg on Friday, KB Investment & Securities Co. analyst, Byun Han Joon noted that smartphone shipments of 74 million handsets was 2 million lower than expected.

Why the slowdown in sales and concern about future quarters? Competition is partly to blame as some consumers could be waiting for the next Apple iPhone, expected within the next few months. And unlike the early days of the smartphone market, the “easy” growth is long behind. Companies that weren’t considered leaders in this area have advanced their products to the point where they’re seen as comparable to Samsung’s devices.

Let’s face it: Much of the major innovation in smartphones has already taken place. At this point, the top devices from different manufacturers, particularly in the Android market, are very comparable. They tend to use the same chipsets, similar display technologies, wireless capabilities and camera options. Points of differentiation now are more limited to software add-ons or unique twists on hardware: Think of HTC’s Beats Audio or the waterproof feature of Sony’s Xperia ZR smartphone. This also explains the 19 different icons on Samsung’s Galaxy S 4 native settings screen.

Galaxy S 4 setting buttons

Will Samsung continue to find it harder to boost sales and revenues? I think so. So too will the other handset makers; just today HTC’s future earnings were under scrutiny for similar reasons. When emerging markets gain the network infrastructure to support high-end, high-priced smartphones we could see more of the old “easy” gains. For the near future, however, it could be tough going for more growth.

  1. Frank A NYC Friday, July 5, 2013

    I agree with most of your analysis. I would add that there is less incentive to get a new phone every year since even last years phones are still very good. If you bought a Galaxy S3 last year, are you really motivated to buy a GS4 when you will have to pay a huge early termination fee, or buy the phone at full price?

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    1. Excellent point that I hadn’t considered, Frank. I’m still using a Nexus 4, so I actually should have thought of the hardware and contract cycles. Even though some of the new flagships are outstanding, I don’t feel the need to upgrade just yet.

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  2. I’m excited about Google Glass- my neck hurts looking down at my phone

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  3. Kevin,

    Can you read numbers?

    1- HTC made less than $100 billions while Samsung made $8.5 billions. It means Samsung made more than 100 times profit than HTC. Then how is the sentence “First HTC and now Samsung has investors concerned” came to your mind? Btw, did you forget that the market cap of Apple was halved from a year ago.

    2- The Galaxy S4 sold than %50+ more than the S3 in the same period. The 20 million phones in just 2 months does not equal the failure you draw. The sales did not slow down. It was not as much as some stock holders expected.

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    1. Mac, I can read the numbers. ;) I agree that there’s a magnitude of difference between HTC and Samsung’s figures (I think you meant million with HTC, not billion, BTW). Here’s a quote from one of the linked stories however:

      “Shares of Samsung, which accounts for 18 percent of the benchmark Kospi index, fell 3.8 percent to 1,267,000 won as of the close of trade in Seoul. The stock has dropped 17 percent this year, compared with an 8.2 percent decline in the Kospi.”

      I.e.: investors are concerned. And this story isn’t about Apple, so I didn’t feel the need to mention that.

      As far as the 20 million Galaxy S4 phones sold, that’s not official (AFAIK: I haven’t seen a company statement on that; in fact, it has refused to comment on that figure based on my sources). Regardless, I agree that the GS4 is a big hit for the company. However, analysts and investors expected more, as you noted. Thanks!

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  4. Nicholas Paredes Saturday, July 6, 2013

    There are large swaths of the public who are not actually using the devices the purchase as smartphones, outside of perhaps photos and Facebook. My SE P910 could probably do that if it had edge in the mid 2000s.

    As with computing, sales followed updated of functionality. Your assessment of innovation stagnating says much more about this predicament. The handset will be your computer in the future, and since you’ll also have a tablet, the cloud is going to be key.

    We are at the point where the Mac and PC launched. If nobody is innovating, that says much. But, commerce is shifting to new mobile experience, and multi-channel. Computing has changed drastically in its focus on the cloud. Sensors are changing the monitoring of behavior. But, little of this has been truly impact full yet.

    Asking, what will make it impactful?, may provide some clues to what’s coming.

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