Samsung Electronics forecasts 60% fall in quarterly profit

[Tom]

Or build differentiated products like the Note 4 - superior AMOLED display, digitizer with highly sensitive pen, true multi-tasking, high quality in-hand feel with removable battery and microSD. What they need to do is build more products like this and not mediocre ones like the S4. The S5 was OK but there was still a lot better they could have done.

Samsung can continue to complete at the high end and charge a premium, but you have to get something over the commodity products.

What's "mediocre" about the S4 ?

What does a quarterly loss now have to do with the S4 ?

I don't think you know what you're talking about. Who associates "Samsung" with luxury products ?

That's their failure. Overreach and believing the public is going to think a 2nd rate dvd player manufacturer, makes products that compete with Apple, or even Sony.

And I'm talking about perception, not the actual products. That's what sells luxury.

 

[ponyo]

People have been declaring the market is saturated for a couple of years now. Is there definitive proof of it?



Apple is the only vendor for iOS phones. Their walled garden keeps their users in, and also keeps their competitors out. Plus they do stuff like keep 16GB and make 64GB the next storage size jump which gets people to give them an extra $100. From a business sense it's a smart move, from a consumer sense it's called being ripped off, but people like their gadgets so they pay anyway.

Don't forget AppleCare. That's extra $100 that Samsung and others can't get. Every additional iPhone sales is another potential AppleCare sale. And lot of people buy the ripoff AppleCare. If I was Samsung, I would get in on the extended warranty business too.

 

[dawheat]

What's "mediocre" about the S4 ?

What does a quarterly loss now have to do with the S4 ?

I don't think you know what you're talking about. Who associates "Samsung" with luxury products ?

That's their failure. Overreach and believing the public is going to think a 2nd rate dvd player manufacturer, makes products that compete with Apple, or even Sony.

And I'm talking about perception, not the actual products. That's what sells luxury.

I think Samsung's flagship sales vs. Sony invalidates your opinion on whether Samsung was capable of establishing flagship credibility. Apple of course always stood alone from every other Android OEM. Certainly the Note series shows that Samsung can complete at the high end in both perception and reality if the product justifies it.

The S3 was a huge successes for Samsung and gave them substantial momentum going into 2013. Many folks who had never tried Android were willing to give them a shot and the buzz around the S4 launch hasn't been matched by any subsequent Samsung release since then.

They had an opportunity to solidify that goodwill into long term loyalty but stumbled with the S4. Beyond the disaster that was their presentation, it suffered from feature bloat that caused constant stuttering, mediocre battery life, poor low light camera, and some of the worst glossy plastic in that generation of phones. The Note 3 avoided most of those issues but phablets were never going to be the volume seller, even at the high end.

It sold well regardless but it definitely was the peak moment for Samsung's profits and general perception. The S5 is a much better phone but has only matched the S4 numbers despite the mobile phone market growing substantially a year later. It desperately needed the Galaxy Alpha type build on the Note 4 and having it on the S6 is awfully late as the industry has evolved.

If you're trying to state an opinion that the Note 4 isn't perceived or is a flagship product, I respectfully disagree. Outside of iOS users, I don't know if any other phablet is even a challenger in buzz or sales to the Note 4.

 

[senseamp]

Or build differentiated products like the Note 4 - superior AMOLED display, digitizer with highly sensitive pen, true multi-tasking, high quality in-hand feel with removable battery and microSD. What they need to do is build more products like this and not mediocre ones like the S4. The S5 was OK but there was still a lot better they could have done.

Samsung can continue to complete at the high end and charge a premium, but you have to get something over the commodity products.

I don't see those as sufficient differentiators that others in Android ecosystem can't compete on. It's still commodity hardware. $600 for a device with $200 BOM are monopoly margins, not commodity hardware margins. They aren't sustainable in the long term. They are only happening because of carrier subsidies in the first place. If you had to pay out of pocket, a $300 phone is the sweet spot.

 

[Commodus]

What's "mediocre" about the S4 ?

What does a quarterly loss now have to do with the S4 ?

I don't think you know what you're talking about. Who associates "Samsung" with luxury products ?

That's their failure. Overreach and believing the public is going to think a 2nd rate dvd player manufacturer, makes products that compete with Apple, or even Sony.

And I'm talking about perception, not the actual products. That's what sells luxury.

The GS4 was a solid phone, but it felt like Samsung was convinced it had already "won" the market and was prepared to coast for the next decade or so. Moreover, it epitomized everything bad about Samsung. It had a cheap-feeling, uninspired design; there was an avalanche of broken features meant solely to look good in sales demos; the software put too much of a burden on the hardware (the Google Play Edition added two hours of battery life simply by dropping TouchWiz). Heck, Samsung even managed to throw in some old-fashioned sexism for the launch event.

Contrast that with the HTC One. It had a unique, premium-feeling build, there were few gimmicks, and even those that existed were both better implemented. It felt like a faster phone simply because its UI was both less convoluted and didn't weigh down the hardware. Even that camera... it wasn't that great in daylight, but I actually preferred it to the GS4's simply because it had a better interface and was useful in more real-world situations (particularly low light).

Consider this: when Samsung introduced the Galaxy S5, it was basically one giant apology for the GS4. Sorry, the interface will be a bit simpler this time. Sorry, we're adding features you'll actually want, like water resistance and an ultra power saving mode. Sorry, we'll focus just on introducing the product, not on stereotyping women as vapid socialites. The GS5 was still a pretty conservative phone, but it at least felt like Samsung cared about the end result.

 

[Mopetar]

I think Samsung's flagship sales vs. Sony invalidates your opinion on whether Samsung was capable of establishing flagship credibility.

Not necessarily. At the time of Samsung's rise to the top, most of the other manufacturers were churning out absolute garbage. HTC had a big hit with the EVO, but a lot of the phones that came after were just rehashes of it and did poorly. One of my friends at the time had bought a Thunderbolt which had such abysmal battery life it was practically useless if you weren't near an outlet every few hours. Motorola kept releasing rehashes of the original Droid and could never quite capture the same success as their original offering. LG hadn't had much in the way of decent phones either and Sony was still trying to sell some kind of bastardized PSP-phone hybrid.

Samsung proved that they were capable of making a good device, or at least one that was better than what everyone else at the time had. However, they weren't able to convert much of that into brand loyalty. People just wanted the best Android phone (or someone would even say the best phone in general) possible and at that time Samsung was offering everything they could want. Now, their competition has caught up and for a lot of people the best possible (Android) phone is no longer a Samsung device. There's even some speculation as to whether or not Apple will eat a lot of their lunch now that they have a phablet as well.

 

[dawheat]

I don't see those as sufficient differentiators that others in Android ecosystem can't compete on. It's still commodity hardware. $600 for a device with $200 BOM are monopoly margins, not commodity hardware margins. They aren't sustainable in the long term. They are only happening because of carrier subsidies in the first place. If you had to pay out of pocket, a $300 phone is the sweet spot.

The BOM of the Note 4 is probably going to be $250 (Note 3 was $232) - you then have to tack on reasonable R&D costs, distribution, and support.

The OPO 64GB using older hardware and without many of the extra features in the Note 4 (1440p screen, digitizer, fingerprint scanner, etc) was admitted to be selling at break-even at $350. This with non-existent sales presence, no carrier presence, and 0 support which most consumers won't accept.

So I think even as the market increasingly commoditizes, the flagship price point is going to be higher than your guess once you tack on a small but sustainable profit (probably close to Motorola's current pricing).

The question really is - what premium will customers be willing to pay for differentiating features. Obviously people will value them differently, but I'm pretty confident the Note 4 will sell very well - with and without subsidies.

You simply can't get the below on any competing phone right now - is it worth a $300 premium? Maybe not, but that's for the market to decide and how long it takes competitors to match it:
- 1440p LCD screens (e.g. G3) take up too much power and suffer in contrast and brightness
- no one else has a digitizer and pen with the sensitivity and accompanying software in a phone
- stock Android doesn't support multi-tasking like TW. Budget OEMs could design custom software to do so, but I don't think anyone has it at the level of Samsung

 

[Commodus]

If there's one common misperception that irks me in the smartphone fan community, it's that notion that the ~$350 Nexus / OnePlus prices are what all high-end phones should really cost, and that companies like Apple and Samsung have been secretly charging $300 more for years because they're eeeeeeevil.

Er, no. Google and OnePlus charge what they do because they're selling at or slightly above cost. If you actually factor in a profit, they would cost considerably more. Look at T-Mobile's version of the Nexus 5, for example: the $349 Nexus 5 sells for $436 when LG is making a significant profit from it, and that's a year after it launched. And don't get me started on all the people who confuse the raw bill of materials with the full cost of making and selling a phone. Even Apple's iPhone profit margin typically hovers around 35-38 percent.

 

[Dari]

Yeah, I made a similar argument in a previous post, but the argument here was that, Galaxy S phones for a year or two ago are still good enough, but can't the same reasoning be applied to iPhones, making the argument invalid? Since Apple isn't loosing phone sales yet.

Or are Apple costumers more irrational (for a lack of a better word) when it comes to their phone purchases.

Apple isn't immune to any of this but things are a bit different wrt China. Remember, Samsung was in China far longer than Apple so Apple has some catching up to do wrt growth. Samsung doesn't. And, again, Andriod and iOS are similar but different markets. Apple has all the 1-2 year cycle iOS customers all for itself. Samsung doesn't.

 

[senseamp]

The BOM of the Note 4 is probably going to be $250 (Note 3 was $232) - you then have to tack on reasonable R&D costs, distribution, and support.

The OPO 64GB using older hardware and without many of the extra features in the Note 4 (1440p screen, digitizer, fingerprint scanner, etc) was admitted to be selling at break-even at $350. This with non-existent sales presence, no carrier presence, and 0 support which most consumers won't accept.

So I think even as the market increasingly commoditizes, the flagship price point is going to be higher than your guess once you tack on a small but sustainable profit (probably close to Motorola's current pricing).

The question really is - what premium will customers be willing to pay for differentiating features. Obviously people will value them differently, but I'm pretty confident the Note 4 will sell very well - with and without subsidies.

You simply can't get the below on any competing phone right now - is it worth a $300 premium? Maybe not, but that's for the market to decide and how long it takes competitors to match it:
- 1440p LCD screens (e.g. G3) take up too much power and suffer in contrast and brightness
- no one else has a digitizer and pen with the sensitivity and accompanying software in a phone
- stock Android doesn't support multi-tasking like TW. Budget OEMs could design custom software to do so, but I don't think anyone has it at the level of Samsung

I'll take the latest stock Android, 1080p LCD, and no stylus for 60% the price. And I don't think I am alone, otherwise Samsung's profits wouldn't be getting hammered.

 

[dawheat]

I'll take the latest stock Android, 1080p LCD, and no stylus for 60% the price. And I don't think I am alone, otherwise Samsung's profits wouldn't be getting hammered.

I'd bet their Note 4 sales beat the Note 3. It's the more pedestrian S5 where Samsung is feeling the pain based on consumers like you and the fact it's not really a differentiated product.

 

[Dari]

It's official. Profit plummeted and so did revenue. No wonder Samsung is offering a massive $200 rebate on purchases of new Galaxy S5 and Note 4s. That won't help with their margins but it'll bring their prices closer to all other Android OEMs.

 

[EightySix Four]

The BOM of the Note 4 is probably going to be $250 (Note 3 was $232) - you then have to tack on reasonable R&D costs, distribution, and support.

The OPO 64GB using older hardware and without many of the extra features in the Note 4 (1440p screen, digitizer, fingerprint scanner, etc) was admitted to be selling at break-even at $350. This with non-existent sales presence, no carrier presence, and 0 support which most consumers won't accept.

A quick note here, OnePlus doesn't have anywhere near the manufacturing reach or capabilities of Samsung, drastically inflating their price in comparison. Remember, Samsung makes screens, SOCs, and NAND within the Samsung empire. They don't have to buy from someone else.

 

[jpeyton]

They still somehow managed to ship twice as many smartphones as Apple last quarter, despite falling profits and revenue.

It's clear they need a new design direction for their portfolio. I look forward to seeing what 2015 brings, with LG, Lenovorola and Xiaomi on their heels.

The S4 was still their best phone of the last few years. They need that lead in value and industrial design over their Android competitors again.

 

[Commodus]

It's official. Profit plummeted and so did revenue. No wonder Samsung is offering a massive $200 rebate on purchases of new Galaxy S5 and Note 4s. That won't help with their margins but it'll bring their prices closer to all other Android OEMs.

Samsung may have dug itself a hole here. The competition at the low end from China is the main thing, but it has long felt like Samsung's high-end is a house of cards... built on a flimsy foundation. It got its big break by copying Apple, and it spends way too much time playing the spec sheet game. It now has to figure out how to provide an original, quality experience that isn't simply based on having larger numbers than its rivals.

 

[Dari]

A quick note here, OnePlus doesn't have anywhere near the manufacturing reach or capabilities of Samsung, drastically inflating their price in comparison. Remember, Samsung makes screens, SOCs, and NAND within the Samsung empire. They don't have to buy from someone else.

This is great when there is growth but horrible when the losses start.

 

[VirtualLarry]

Commodity hardware, which is what Android smartphones are, should be making commodity profit margins, just like televisions, DVD players, PC's, etc. For smartphones, that should price them around $300 off contract.

Geezus. $300 is a lot of money for some of us. I paid $180 IIRC for my Samsung Galaxy Exhibit II 4G phone, and that price included a $50 pre-paid T-Mobile refill card.

It's been fairly good to me. I finally got a minor scratch in the front glass, but it otherwise works.

I would hope that when smartphones become "commodities", that they would be priced $120 or less.

 

[WelshBloke]

I'll take the latest stock Android, 1080p LCD, and no stylus for 60% the price. And I don't think I am alone, otherwise Samsung's profits wouldn't be getting hammered.

You'd have to compare Samsungs sales to their android rivals to say that really.

 

[Dari]

You'd have to compare Samsungs sales to their android rivals to say that really.

I think he is. Think about it, an iPod touch used to cost less than half of what an iPhone cost. Why? Did the phone have $300 more hardware/software? Doubtful. It was just profit-taking. Phones these days do not need to cost $600-900. A lot of OEMs are showing what's possible.

 

[poofyhairguy]

Geezus. $300 is a lot of money for some of us. I paid $180 IIRC for my Samsung Galaxy Exhibit II 4G phone, and that price included a $50 pre-paid T-Mobile refill card.

It's been fairly good to me. I finally got a minor scratch in the front glass, but it otherwise works.

I would hope that when smartphones become "commodities", that they would be priced $120 or less.

You already have your wish. Starting with the Moto G, you can now get a lot of smartphone value for $120 or less. Low-end phones will keep getting better and better with more value.

The $300 mark is for high-end devices. Just like laptops bottomed out at around $300, that is the price point for the list of materials for a high-end smartphone. Just like in laptops it is this high-end that lacks value, as instead of being a 10% or whatever markup like the Moto G is its a 50% one with $650+ sticker prices. If your hope is that high-end smartphones go away and the high-end is locked at sub $200 I strongly disagree, I don't want to limp by with substandard hardware unless I pay the Apple Tax (kinda like with laptops today).

In fact its just the opposite- at around $400 a phone (so the $300 materials plus a 30% markup) I would upgrade at less than 12 months rather than my average of 18 months. My smartphone is my flagship compute device, the thing I show off to strangers to prove that I am "smart with computers," aka the same job my Powerbook did back in college or a Porche does to some middle aged dude looking for a second wife.

If I could always be carrying what is cutting edge tech for $35 a month ($400ish divided by 12) I would do it in a heartbeat. As it is I cannot afford the depreciation of the $650+ devices, as they all drop to the $400-ish range on Swappa six month out anyway. If I could cut out those six months and that $200 I would flip phones like a dealer in Vegas flips cards.

 

[Harry_Wild]

Apple with it new size iPhones; took away Samsung core high end phone business. The iPhone 6 for the regular user; and the + for the phablet user! Samsung has nothing to compete with! They are discounting the Note 4 and still it not sell well. Galaxy S5 has a new version with a 805 inside and it still not selling as well as the iPhone 6 in South Korea! LOL!

 

[WelshBloke]

I think he is. Think about it, an iPod touch used to cost less than half of what an iPhone cost. Why? Did the phone have $300 more hardware/software? Doubtful. It was just profit-taking. Phones these days do not need to cost $600-900. A lot of OEMs are showing what's possible.

What's that got to do with people preferring stock Android?

 

[dawheat]

Seriously - for a company that sold 78.1 million smartphones last quarter and made more profits than all other Android manufacturers combined, it seems ridiculous to suddenly declare that they're dead.

They're paying for the shotgun strategy of releasing a hundred models - all which cost R&D, distribution, and marketing - while at the same time releasing a relatively lackluster flagship (S5) which still sold more than any other Android flagship.

I think Samsung has been responding to this wakeup call for a couple quarters, but it's only going to start showing in the upcoming quarters. Fewer models, higher quality - which for Samsung still probably means a couple dozen models. But the Note 4 is a great kit and shows Samsung can still make the best phone in a segment. It stands and wins on its own merits. The A5 and A7 show they're serious about improving quality even at the mid-range.

However the S6 launch will probably be the most important launch for their smartphone division...ever. Not only does it need to have the newest and best inside, it'll need to combine an ever better build than the Note 4 + a display that extends its lead, and a fresh approach to TW with Lolippop. Luckily they're still making billions a quarter to let them react from a position of wealth.

 

[StrangerGuy]

It's telling that the current three models from Xiaomi's are vastly more appealing devices for the price than like ~95% of Samsung's current lineup.

One awesome device (S2/3, Note 3)>>>>>>>>>>>> a million different mediocre devices

 

[dawheat]

Just in comparison to other quarterly announcements today:

- HTC announced a profit of $19 million dollars this quarter
- Sony shipped 9.9 million smartphones

So Samsung has a lot of work to do and their newest phones are a step in the right direction. But there has to be some perspective - there's basically Apple standing alone, then Samsung, and then a long tail of no money.