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 Samsung last week gave second-quarter earnings guidance that was far
weaker than expectations and is on track for its worst quarterly
profit in two years, a performance the company attributed in part to
price competition and higher inventory levels in China.
Research firm Counterpoint's survey of 35 markets accounting for
nearly 90 percent of global sales found that sales for the
eight-month-old iPhone 5s stood at 7 million in May, compared with
about 5 million for Samsung's flagship Galaxy S5, which was in just
its second full month of sales after a late March release.
Counterpoint said that the Galaxy S5 appeared to be doing worse than
the Galaxy S4 had done in its early launch against the iPhone 5,
with each selling about 7 million units a month. The data measure
retailers' sales to consumers as opposed to typical industry data
that look at shipments made by the manufacturer.
Galaxy S5 sales probably remained at about 5 million units in June,
said Tom Kang, Seoul-based analyst for Counterpoint. He said the
Galaxy S5 fell short of market expectations in terms of display
quality and by using a plastic case.
"They made one mistake, one product that didn't hold up to
expectations and they are paying the price," he said in a phone
interview. "They will have to move forward and leave behind what has
failed and focus on the next product."
The data suggests that Samsung's problems run deeper than just the
inventory buildup in mid-to-low tier devices that the company
reported earlier in the month after disclosing weaker-than-expected
second quarter guidance.
Samsung declined to comment on Counterpoint's data or disclose
shipment figures for the Galaxy S5, though a Samsung executive in
April said that the new flagship device was expected to outperform
its predecessor.
"We will strengthen our product competitiveness by reinforcing our
premium brand reputation, powerful product line-up, and cutting-edge
technology," the company said in an email statement on Wednesday.
Data from research firm Canalys showed that Samsung's market share
in the first quarter of 2014 fell to 18 percent from 20 percent a
year earlier, while the likes of China's Xiaomi and Lenovo Group Ltd
<0992.HK> made gains.
Analysts said Samsung's new products such as the S5 did not offer
enough to entice consumers to pay a premium over cheaper
alternatives that were rapidly improving in quality.
"Most major smartphone brands worldwide are battling brand fatigue
at the moment," said Strategy Analytics analyst Neil Mawston.
"Consumers love their smartphones but almost all hardware, software
and apps now look, feel or cost the same."
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Apple, however, continues to be able to charge premium prices. Its
iPhone 6 generation, expected to be launched as soon as September,
is anticipated to sport bigger screens which would encroach on what
has been a key Samsung advantage.
The Counterpoint data also suggest that Apple's smartphone sales
have remained resilient even as anticipation for the new product
launch builds. The U.S. company is expected to report its fiscal
third-quarter results later this month.
SLOWING MARKET
Some slowdown for Samsung was expected following a record year of
profits in 2013. Strategy Analytics forecasts global smartphone
shipments growth this year to slow to 21 percent from 41 percent in
2013, while faster growth for cheaper smartphones was also expected
to undermine margins.
Samsung's worse-than-anticipated operating profit guidance of 7.2
trillion won ($6.96 billion) for the April-June period caught
analysts by surprise. Thomson Reuters I/B/E/S survey shows that 28
of 50 analysts polled have cut full-year profit forecasts for the
company since the guidance was issued on July 8.
A worker at a South Korean carrier shop in central Seoul said sales
of the iPhone 5s and the Galaxy S5 were roughly equal at his store,
even though the Apple device had been on the market since October in
South Korea.
"IPhone sales have been consistent and the differentiating factor
for it is the design," said the worker, who only wanted to be
identified by his surname Kim as he was not authorized to speak to
the media. "There isn't much difference in the design of a Galaxy
phone or an LG phone."
Some analysts said Samsung should bite the bullet and cut prices
across the board, trading short-term margins for market share, while
others say Samsung should look at more innovative change such as
introducing flexible displays.
Counterpoint's Kang said Samsung may also need to consider adopting
a new brand for its high-end products.
"The Galaxy brand has been weakened because it's selling $100, $200,
$300 phones while Apple only sells $400 and above, so they might
even need to throw away their Galaxy brand," he said.
(Additional reporting by Paul Carsten in BEIJING and Kahyun Yang in
SEOUL; Editing by Tony Munroe and Stephen Coates)
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