Apple puts the big hurt on Samsung

2015 will be a challenging year for the Korean phone maker, but there are steps Samsung can take to reverse its declining market share

Samsung Galaxy S5

Things are not looking so good for Samsung in the smartphone market, especially as it faces its Apple nemesis.

Long the world's largest smartphone maker, Samsung is likely to see Apple iPhones rise to the top spot in 2015, pushing Samsung and its Galaxy and other smartphone models into second place.

What's more, Apple is releasing in April its first Apple Watch, which could knock the wind out of smartwatch competitors including Samsung, which already has several models on the market.

"No question, 2015 is going to be a challenging year for Samsung," said IDC analyst Ryan Reith.

There are many reasons for Samsung's decline and not all of them have to do with Apple's product superiority. What Samsung must do to reverse its declining share in smartphones and remain a competitor against Apple in smartwatches may sound like a complex marketing dilemma, but a lot comes down to Samsung's basic need to build a better overall brand reputation.

"Building brand loyalty and customer lock-in to a Samsung ecosystem is the major challenge Samsung faces in battling Apple, " said Jack Gold, an analyst at J. Gold Associates.

Samsung's smartphone decline

Fourth-quarter smartphone shipments show Samsung's embarrassing decline. Apple and Samsung virtually tied in global shipments, each reaching about a 20% share of the total market, according to research firms Strategy Analytics and IDC.

A year earlier, in the fourth quarter of 2013, Samsung had about a 30% smartphone market share, compared to Apple's 17%.

IDC on Thursday said that the smartphone gap between Samsung and Apple had narrowed to 600,000 units at the end of 2014 with Samsung still in the lead. But IDC warned: "Continued success from Apple, coupled with ongoing challenges facing Samsung, could enable Apple to overtake Samsung during the 2015 calendar year."

In the fourth quarter, Samsung shipped 75.1 million smartphones, while Apple shipped 74.5 million, IDC said, well ahead of the others in the top five: Lenovo (24.7 million), Huawei (23.5 million) and Xiaomi (16.6 million).

Even in South Korea, home of Samsung, Apple surged ahead in smartphones in the fourth quarter, grabbing 20% of that market, up from 11% a year earlier, Strategy Analytics said. For November, Samsung's domestic share fell to 46%, down from 61% in September (before the new iPhones had taken their toll), according to Counterpoint Research.

Clearly, Apple did well with its new iPhone 6 and iPhone 6 Plus in the fourth quarter, but Samsung also crashed, comparatively, with its Galaxy S5, introduced earlier in the year.

"The Galaxy S5 sold horribly and had a significant impact on Samsung's profitability last year," said Kevin Burden, an analyst at 451 Research.

Patrick Moorhead, an analyst at Moor Insights & Strategy, said U.S.buyers perceived the Galaxy S5's plastic case as "cheap." Plus, the phone had new technologies that consumers didn't find valuable, such as a heart rate monitor. "Samsung has to do a better job aligning their technological capabilities with what consumers are asking for and new innovations that they can create," he said.

"Samsung's biggest issue is that they failed in 2014 to innovate and build upon the success they were having over the past five years," added IDC's Reith. "They have very much stayed stagnant, in terms of brand image, device lineup and marketing. The Galaxy S line should have been a three-year, three-device strategy, with another completely different sub-brand to follow-on. Instead, it is almost six years now and becoming stale."

The coming Galaxy S6

While Samsung need to end the Galaxy S line, there are already reports indicating that Samsung will produce a Galaxy S6, probably to be unveiled at Mobile World Congress in March.

Rumors suggest the Galaxy S6 could have Samsung's own in-house Exynos processor, instead of a Qualcomm 64-bit Snapdragon 810, which has been found to be susceptible to overheating problems.

Using its Exynos processor, Samsung could save on costs and flex its technology muscles, but better styling and other features are what may more important in Galaxy S6. Some pundits have suggested the device needs an "Edge" version, where the screen wraps around one side, but even the value of the Edge technology isn't a proven market winner.

"We are hearing rumors of a Galaxy S6 announcement at Mobile World Congress and if so, my guess is that it won't be well-received," Reith said. "This is the time when Samsung needs to launch something new in its product line, its brand, its messaging and overall value proposition."

The China effect

While Samsung may need to overhaul its smartphones, there's little question it is being hurt by a range of cheaper smartphones, mainly from at least 10 Chinese manufacturers.

IDC put Lenovo, Huawei and Xiaomi — all based in China — in third, fourth and fifth place in total shipments in the fourth quarter behind Samsung and Apple.

Apple has always been seen as a premium brand and hasn't competed in the low-cost smartphone segment. Even so, Apple walloped the smartphone market in China in the fourth quarter of 2014, doubling its sales over the prior year, and accounting for 22% of Apple's overall sales for the quarter. Apple managed to attract customers to its high-end iPhones in China, a feat that's been out of reach for Samsung.

"The case in China is less that Samsung is getting pushed around by Apple as they are feeling the pressure from Chinese vendors that are hungry and satisfied with low-digit profit margins," Reith said. "At the same time that Apple is clearly not letting up, Lenovo, Huawei and Xiaomi are all gunning for the top."

While Samsung gets drubbed for not being more innovative in smartphones, it is simply harder to be innovative with lower-priced smartphones that cut out expensive features, Gold noted. At the low end, "you have newcomers with new models like those from Xiaomi that have stolen a lot of Samsung's thunder," he said.

Changes needed for Samsung's smartphone brand

Samsung seems to miss something basic that Apple is really good at: Long-term market research about what technologies matter most to buyers and the ability to act on those insights.

1 2 Page 1
Page 1 of 2
The 10 most powerful companies in enterprise networking 2022