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On Tuesday this week Samsung dropped a bit of a bomb on Wall Street. Instead of profiting to the tune of $5.2 billion for the quarter, which is what analysts were expecting, Samsung said it would only pull in $3.8 billion.
While it's easy to throw out the sarcastic "Poor Samsung" comments, this is a huge miss. Earnings will come in 60 percent lower than the year-ago quarter. Analysts were not expecting this, so from a financial markets standpoint it's major news.
Samsung cited a wide variety of causes for the weakness. It spent more than expected on marketing, shipped fewer high end smartphones, saw pricing pressure on low-end smartphones, and sold less displays & TVs.
One year ago Samsung seemed almost unstoppable. In most of North America and Europe it was the dominant Android hardware brand and they still are. But competition at the low end is getting intense in Android-land, and at the high end Apple has finally come to market with the big screens that people want.
The result? Samsung has been forced to cut prices at the low end and has, so far, seen fewer high-end unit sales. All of this is bad for profitability. But it's not like Samsung is at risk of becoming unprofitable anytime soon. It still has an important advantage when it comes to the supply chain. But as a South Korean company, it's also bound to have higher development costs than a comparable Chinese manufacturer. And I think it's fair to say that as the low-end smartphone gets further and further towards the goal of killing off feature phones, volume for low-cost components out of China continues to rise. As this happens, pricing gets better, and Samsung's vertical integration may become less of an advantage.
If all of this seems similar to the WinTel PC market of decades past, that's probably because it is similar. HP, Dell and Compaq made decent money for a while. But in the end they were competing in the creation of a commodity sold in the form of hardware. They did not control the operating system — that was Microsoft's domain. The Redmond software giant got very big while box makers fought with each other over razor thin margins.
Today, Android is the dominant OS, and Google benefits more if the phone makers sell at razor thin margins. Why? Because phones become cheaper, giving more people access to Google's OS and digital store. The mobile game is shaping up to look exactly the same as the PC game except that Microsoft has been replaced by Google and there is added money in the form of app stores. Apple still holds the #2 seat (by operating system volume), although it looks like they are a much stronger No. 2 than in the prior PC battleground.
As a Google shareholder, I'm pleased to see Samsung as a less powerful player. It isn't good for Google if Samsung is too powerful in terms of hardware market share and profit share. Google benefits more if the power is spread out among hardware vendors such that none of them really have any power.
So just in case you were wondering, Samsung's weakness has nothing to do with any weakness for Android or Google. Instead, I think Google is probably thrilled to see more of a balance in power shifting to them.
Richard Devine 10 Oct, 2014
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Source: http://feedproxy.google.com/~r/androidcentral/~3/JXnvjv6iG8w/story01.htm
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