Samsung forgot the lesson it learned 2 years ago and now it's imploding
Its semiconductor business is growing healthily. It is Samsung's beleaguered smartphone business that is the problem.
Samsung was once the undisputed king of the smartphone industry. But in recent years it has run into repeated difficulties. A lack of meaningful differentiation from other devices on the market - a problem that plagues all Android manufacturers - has left Samsung vulnerable to low-cost upstarts, while the runwaway success of Apple's iPhone 6 has also battered the company's sales.
In short, Samsung is being killed at both the high-price and the low-price sections of its phone business, and it is mismanaging the one area where its phones are performing well: the Galaxy S6 Edge.
Down, down, down
Here are the details of the decline, via the Wall Street Journal:
So what's going on? Part of it is a misstep surrounding demand for its flagship devices, the Samsung Galaxy S6 and Galaxy S6 Edge. The S6 is Samsung's big flagship phone; the Edge is its new curved-screen version of that model. According to one of the Journal's sources, Samsung assumed demand for the devices would be around 4:1 in favour of the regular S6. But it turned out that the Edge has been unexpectedly popular, and demand is closer to 1:1. As such, the company was left scrambling, with excess inventory of S6's, and not nearly enough of the more expensive S6 Edges to satisfy demand.
Blogger Ben Thompson writes in his Daily Update email this is "a pretty clear screw-up," with Samsung failing to recognise what its customers are actually after. He goes on:
Samsung already forgot the lesson it learned two years ago
Samsung struggles to differentiate itself
Thompson's comments are indicative of a far greater problem inside Samsung - beyond its premium build quality, there's no longer much to differentiate its smartphones from its (often far cheaper) competitors. It's a problem that faces the entire Android ecosystem: The operating system offers users greater functionality than iOS does, but their shared use of this OS means that individual hardware companies find it hard to stand out from the pack.
Samsung used to have one killer differentiate: Its premium, large-screened devices. It offered a smartphone experience that even Apple - with its paltry-sized iPhones, at least until 2014 - couldn't match. But then the iPhone 6 and 6 Plus came out, and those phone have consistently stolen share from Samsung. The Cupertino company enjoyed the most profitable quarter of any company ever, while Samsung's profits cratered.
As Apple Insider put it in January 2015: "Apple Inc's thermonuclear assault on Samsung vaporizes Android's remaining profit pillar."
It is being attacked at the high end, and the low
Data from Gartner released in May 2015 shows how the global smartphone market is booming, jumping to 336 million phones in use from 281.6 million a year prior. But the smartphone maker is failing to benefit from this trend: The research company believes Samsung's device sales actually shrunk year-on-year.
It's not over (yet)
Of course, it's important to keep this all in perspective: Samsung is still making a profit. And there clearly is demand for the S6, even Samsung has failed to properly prepare for it. In contrast, HTC, another high-end smartphone maker, expects an operating loss of $166 million for second quarter of 2015, TechCrunch reports.
But the Galaxy S6 was supposed to help turn things around. Today's news proves that just hasn't happened.