The real reason behind Samsung's slump
According to the company's guidance posted Monday, profits will be down about 4% for the last quarter due to disappointing sales of its latest flagship phone, the Galaxy S6.
It's the same story we've seen over and over again for the last year or so, but with a slight twist. Samsung is struggling to sell its high-end Android phones against cheaper models that have similar specs, from companies like Xiaomi. But this time Samsung says sales aren't as good as expected because it can't make enough phones to keep up with demand. Specifically, Samsung says it can't keep up with demand for the Galaxy S6 Edge, the more expensive version of the Galaxy S6 that has a curved screen.
But even if there were supply issues with the Galaxy S6 Edge early on, they appear to be gone now. A quick search shows you can have one shipped to you within 24 hours through most retailers. Samsung rarely reports smartphone sales, so we'll probably never know how many Galaxy S6s are sold. All we can go by are the company's earnings reports, which have shown dwindling profits for seven consecutive quarters, mostly because of sales declines in the mobile division.
Alleged supply issues aside, Samsung faces the same problem it has for the past year. Even though the Galaxy S6 is a great phone, it doesn't have anything special to differentiate from the dozens of other Android phones out there. Many Android phones can do just about everything the Galaxy S6 can do, but for a fraction of the price.
There's very little incentive for someone to buy a $650 Samsung phone over a $300 Xiaomi phone, especially in developing countries like China where most people can't afford a high-end phones. And if someone does want to spend $650 or more, they're better off buying an iPhone, which has a unique experience you can't find on other phones. In fact, Apple has been crushing it in China since releasing the new big-screen iPhone 6 and iPhone 6 Plus.
Samsung had a short reign as king of the smartphone world, but it's over now. The Galaxy S6 was an attempt to put more focus on build quality and design to attract more users, but that's clearly not enough. (Previous Samsung phones felt cheap and plasticky.) Samsung's mistake with the Galaxy S6 was trying to make it look like an iPhone in order to justify the higher price. Instead, it should've focused on software or services to help build a unique ecosystem around Samsung phones.
Samsung, on the other hand, mostly focuses on hardware specs. Samsung did announce Samsung Pay, its mobile payments system for the Galaxy S6 was supposed to launch this summer, but it has reportedly been delayed until the fall. But that probably won't be enough to catch up to Apple's ecosystem advantage.
It's important to keep in mind that even though Samsung's smartphone business is shrinking, it doesn't mean the company as a whole is toast. Its chip business is growing nicely. And Samsung makes practically anything that runs on electricity. There's plenty of opportunity for Samsung to experiment or find another major profit generator like its smartphone business once was.