Market Insight

Mid and Low-end Smartphone drove the shipment growth of Samsung

November 02, 2015  | Subscribers Only

Jusy Hong Jusy Hong Research and Analysis Director, Smartphone

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  • Q3 2015 revenue and profit increased YoY but still contracted compared to two years ago
  • Mid and Low-end smartphones pushed the handset shipment growth, while premium products saw a decrease
  • Samsung is continuously enhancing software competitiveness with  initiatives such as Samsung Pay and Tizen O/S

IM Business unit which includes smartphone business posted 26.61 trillion Korean won (KRW) revenue in Q3'15. This is up 8% YoY and 2% QoQ. Operating profit was 2.4 trillion KRW, which reflects 9% of margin rate. Revenue of Mobile business recorded 25.94 trillion KRW, which is also up 10% YoY and 2% QoQ. Q3 result looks healthy comparing to previous year and quarter, but if we look at previous years, it's still lower. Mobile revenue in Q3'15 was almost 10 and 5 trillion KRW behind the same quarter of 2013 and 2012 respectively. 

Our analysis

Samsung announced that 105 million units of overall handset shipment in the quarter. Among that, smartphone recorded 86 million units with 19 million units of feature phone. Although smartphone shipment volume is growing continuously, it still accounts for just 80% of overall handset shipment.  Even this proportion has been declining in 2015 with strong feature phone shipments. This is mainly caused by strong demand of cheaper handset in the emerging markets where the economy has been going through recession.
Economic recession also impacted on smartphone business of Samsung. Share of premium smartphone series, such as Galaxy S and Note, declined due the substantial growth from the mid and low-end series. Combined shipment of Galaxy S and Note series accounts for 28% of the total smartphone shipments in Q3'15, which is a large decline from 47% in the same period of the previous year.

These are counter models to compete with Apple's iPhones, but the battle has been unfavorable for Samsung especially in China. Apple's result announcement two days earlier showed a significant impact in China with 99% revenue growth from the previous year. According to the latest research of IHS, Samsung's share in China smartphone market slipped to 6th position. Besides the well-known Chinese OEMs, such as Xiaomi and Huawei, Samsung stands behind much smaller brands like Vivo and Oppo.

Samsung is facing severe competition in the mid and low-end smartphone market with Chinese and local players in emerging market. Although Chinese OEMs are still focusing on China local market, their international expansion is inevitable as the China smartphone market has already started slowing down. Few players are already well-known internationally. Huawei, ZTE and TCL-Alcatel have set up good networks, strengthened their marketing and promotion, and increased their international sales.

Samsung's move of enhancing the mid and low-end product line up is a part of a strategy to compete with the rising Chinese OEMs. Relying on hardware competitiveness is inappropriate at this moment and the future. Samsung strove for reinforcing software competitiveness in mobile business for many years. But no prominent result has been seen yet. However, recently launched Samsung Pay has made a good start. According to a Samsung news release, the number of Samsung pay users already reached 1 million people in the two months period after launch in South Korea. Samsung also increased the number of banking and credit card partners in US and expanded the Samsung Pay service to other countries. This may leverage Samsung's smartphone shipment growth in these advanced markets. Only the latest Samsung smartphones can use Samsung Pay now but this is likely to extend to lower-end smartphones next year.

Also Samsung’s own O/S equipped smartphone Z series is also getting a good response in India. IHS expects that Tizen smartphone shipment will exceed 1.7 million units in 2015. Samsung is planning to expand Z series to other emerging countries.

 

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