The concept of Peak Oil has gained currency in recent years to help consumers understand what it might mean for oil production to stop growing and begin a long, slow slide from its high point. There's no firm agreement on when -- or even if -- we'll hit Peak Oil, but here's a scary thought: We may have already hit Peak Samsung!
Based on the company's fourth quarter earnings report last week, Samsung's epic run as the only company besides Apple to actually make money on smartphones is facing serious challenges. Samsung revealed that revenue from its mobile business fell 9% in the quarter, while overall operating profit tumbled 6%. For 2013 as a whole, the company posted a 14% increase in revenue and 27% jump in operating profits to hit record levels, but the stock is down some 10% over the past year.
Samsung getting squeezed
The problem, apparently, is that Samsung is facing new competition on the low end from Chinese manufacturers of Android devices like Lenovo and Huawei. Competing with devices priced as low as $100 is driving down Samsung sales and profits. On the high end, meanwhile, a resurgent Apple is selling a lot of iPhone 5s models while, Samsung's Galaxy S4 hasn't lived up to expectations. The combination is putting the squeeze on Samsung's strategy of selling high-end, high-priced Android smartphones.
In fact, I'm surprised that this didn't happen even earlier. While I've used and enjoyed many Samsung mobile devices, from what I've seen they're not significantly better than their Android competitors. Samsung's devoted efforts to use software to create differentiation via add-on Android skins like Touchwiz (which even the company admits isn't very good), branded apps, and special features like Air View, Air Gesture, and Smart Pause have mostly fallen flat. (To be fair, so have similar efforts by pretty much everyone in the Android ecosystem apart from Google.) Even Samsung's Galaxy Gear smartwatch is more interesting as a Proof of Concept than as an actual product you'd want to put on your wrist. I'm holding out hope for Samsung's Knox enterprise security solution, but the jury is still out.
Hardware, marketing, and price
That means Samsung has to differentiate via hardware innovations, expensive marketing, and price, just like everyone else. It's not that Samsung will necessarily lose all of those competitions, it's more that the company doesn't have many intrinsic advantages, and can't be expected to continue to outperform all its competitors.
Samsung retains plenty of advantages in the mobile space -- most importantly, it makes the chips and screens used in its own devices as well as those of many of its rivals. That's a sweet position. Samsung itself attributed the poor results to massive employee bonuses for the 20th anniversary of its management strategy, as well as the relative strength of South Korea's currency. Samsung is a lot bigger than just smartphones and tablets, of course, and the company is counting on growth in other sectors, like curved and ultra high-definition TVs, to buoy its fortunes. (Good luck with that...)
Peak Samsung doesn't mean the company is going to pull a BlackBerry or a Nokia and quickly fade to smartphone irrelevance. It's just that we can no longer guarantee the company will continue to be the one and only outfit making money on Android devices. That's a big deal, but unlike Peak Oil, it's not the end of the world.