Samsung Mobile: Market Share and Profitability in Smartphones

Samsung Mobile: Market Share and Profitability in Smartphones

In December 2015, South Korean technology giant Samsung announced a new head to its mobile division. The announcement came on the heels of a challenging year for Samsung. Two handset launches that year had received criticism in the press for the way they were handled. The appointment was interpreted by many in the industry as Samsung signalling a desire to further intensify innovation in an increasingly commoditized product area. Complex questions involving significant trade-offs had to be answered. Should the mobile division push for profitability or market share? Were those objectives mutually exclusive? What was the best strategy for obtaining the chosen objective? And, how could Samsung differentiate itself in an increasingly crowded, competitive, and commoditized market?

Samsung’s demand estimates for products within product lines turned out to be inaccurate, resulting in some models being overproduced and others being under produced. As a result, in a hypercompetitive space such as smartphones, where product life cycles were tight and consumer upgrades of devices drove a substantial portion of the revenue, these small miscues made a big impact and  this mistake create a drawback which mobile division income at Samsung for the second quarter of 2015 dropped 38 per cent.

However, whereas the two companies had been relative equals in terms of profitability just three years before, Apple had become the dominant player in that regard, despite Samsung’s dominance over Apple in market share. At the end of the second quarter in 2015, Samsung accounted for 21.4 per cent of all new smartphones sold versus Apple at 13.9 per cent. However, when it came to profitability, the situation was reversed, with Samsung accounting for approximately 14 per cent of smartphone profits while Apple held the remaining 86 per cent.

The first reason for the discrepancy in profitability between the two companies was simple—price. It is obvious that smartphone world was dominated by two platforms: iOS, a mobile operating system (OS) used on Apple hardware such as the iPhone; and Google’s Android™, the OS used by almost every other handset maker, including Samsung. The competition by more than 1,000 Android handset manufacturers increasingly led to a perceived lack of differentiation and commoditization of Android phones, a situation that had created tremendous pricing pressure for makers of Android phones.

It is the fact that the dominant non-Apple company in China was not Samsung; it was Beijing-based Xiaomi. The available data did not reveal numbers specific to Samsung or switching between brands of Android phones, but they also suggested a couple of key differences between IOS and other platforms. First, Apple was winning the customer platform-switching battle, second, Apple customers appeared to upgrade their phones much more frequently than those who used other platforms. Another main key issue which Samsung company facing was its operating system. Samsung did have some phones with Microsoft’s Windows operating system, but Samsung phones predominantly featured Android. The Android operating system was the featured operating system of more than 80 per cent of the world’s smartphones.