Tasting Apple’s bitter pill: Samsung’s smartphone growth story running its course

Samsung anti-iPhone ad (it doesnt take a genius)

In an age of demand for simple, inexpensive smartphones, big is not always better. The latest example is Samsung, viewed until recently as the Asian Apple, it’s Galaxy smartphones keeping Android from sinking into mediocrity. After snickering at the iPhone maker’s spate of bad luck on Wall Street, Samsung Friday lost 3.6 percent of its stock value amid a disappointing quarterly forecast.

With 70 percent of its profits coming from mobile devices, Samsung is in the same leaky boat as Apple. Addicted to high profits from sales of expensive smartphones built cheaply, Samsung Friday forecast $8.3 billion in profit during the second quarter, lower than the $8.9 billion Wall Street expected.

Since early June, the South Korean firm’s stock value has lost $34.2 billion, the market capital of Sony and LG combined, according to one report…

Reuters sums it up nicely:

Now investors fear Samsung may also follow in the footsteps of Apple and other one-mighty players that are struggling with shrinking margins, in an industry where companies live and die by their ability to stay ahead of the innovation curve.

Although Samsung is a conglomerate, more than 70 percent of its profits come from selling mobile devices. It’s that very dependence which makes investors nervous. So is the Galaxy S4 dead in the water already?

“Is Samsung’s smartphone story now over? Not quiet yet,” fund manager Jung Sang-jin tells the news service. At the same time, Samsung’s kick in the shins is directly related to disappointing sales of its newest phone, the Galaxy S4.

Samsung Galaxy S4 ad (Iceland 002)

“It’s growth is indeed slowing due largely to disappointing sales of the S4,” Sang-jin adds.

Samsung earlier this week reported shipping 20 million cumulative Galaxy S4 units into the channel.

Some notable headlines highlighting the Samsung growth story concerns:

  1. ‘Profit at Samsung Disappoints’ by The New York Times
  2. ‘Samsung’s New Problem: High Expectations’ by The Wall Street Journal
  3. ‘Samsung Electronics’ second quarter misses forecast as smartphone worries deepen’ by Reuters
  4. ‘Samsung Faces More Downgrades as Earnings Miss Estimates’ by Bloomberg

Phones such as the Apple device and Samsung’s S4 were introduced at the start and the last breath of what I call the iPhone Parenthesis, a corollary to the publishing industry’s Gutenberg Parenthesis. In short, both companies must deal with a world saturated with high-end smartphones.

Galaxy S4 hanging mid air

“Apple is suffering from iPhone fatigue, while Samsung is suffering from Galaxy fatigue,” opines Strategy Analytics analyst Neil Mawston, whose notable clients include the South Korean conglomerate.

Philip Elmer-DeWitt wrote for Fortune that Samsung may have become even more dependent on smartphone sales than Apple.

Mobile phones accounted for 74 percent of Samsung’s operating profit last quarter. In the same quarter, the iPhone represented 52 percent of Apple’s revenue and 65 percent of its gross profit.

Also, Samsung customer satisfaction losing to Apple on its home turf probably didn’t help either.

Like Apple apparently deciding to build a less expensive iPhone as well as venture into wearable computing (such as the iWatch), Samsung is also reportedly mulling over Samsung Gear, a new wearable technology brand, and temporarily using its manufacturing resources to increase profits.

ISI chart (Apple, Samsung post-launch free falls)
Samsung’s and Apple’s post-launch free falls by ISI’s Brian Marshall, via Fortune.

As we’ve also reported, low-cost handsets already dominate Samsung sales in China and elsewhere. Apart from those measures, Samsung could scale back on its marketing efforts, suggest analysts.

We’re still scratching our heads over this promo for the S4 Samsung aired in Iceland.


While Apple has been criticized for its highly-controlled PR, it’s South Korean rival actually spent more on marketing than on research and development, according to Reuters.

Among the highlights: $4.3 billion – quadruple Apple – on ads in 2012, open shops in more than 1,000 Best Buy shops and even using a Broadway show to kick off the S4.

But did Samsung get much ‘bang for the buck’?

Like a Fourth of July fireworks show during a rainstorm, shipments of the new Galaxy smartphone are expected to increase by 4-8 percent during the second quarter. All of which gives readers a feeling of deju vu.

Of course, Samsung is not alone in releasing disappointing numbers. In related news, handset maker HTC also failed to wow Wall Street.