A couple of years ago, Samsung was the undisputed king of the smartphone industry but in 2014, the increased competition in the smartphone industry resulted in it losing its grip on the throne. Impressive flagship devices from its rivals coupled with the Galaxy S5 which tanked resulted in the start of a crisis at the Korean OEM but one year on, the company has somewhat righted the decline.
However, while the increase is good news, the joy may be short-lived as it’s not the Galaxy S6 family that’s driven the increase, but rather, Samsung’s lower-end phones. Counterpoint said that while 55% of Samsung’s sales in Q3 2014 were priced at $301 or more, this reduced to 40% in Q3 2015. Instead, phones priced at less than $200 were behind the increase and now account for 38% of overall shipments, compared with 30% last year.
A key part of Samsung’s decline last year was high prices for its devices coupled with increased competition from low-cost smartphones from Chinese players such as Xiaomi and Huawei. This year, Samsung’s Galaxy J series – and in particular, the Galaxy J5 – is believed to have been a big factor in increased sales of budget devices and shows that Samsung is willing to price its devices competitively and fight for volume over higher revenues.
Whether it works for Samsung or not remains to be seen but the volume market may work for the company. In its heyday, Samsung’s profit margins were regularly between 15 and 19 percent but during its big decline last year, they collapsed to 7 percent. Samsung has promised its investors that the margins will rise up above 10 percent and during the third quarter, the company’s margins came at 9 percent.
Selling cheap phones won’t increase Samsung’s margins but it will put more Galaxy devices in more hands and this may lead to an increase in higher end sales, resulting in an increased margin. Either way, Samsung looks set to have a much better year, this year and the decline of last year could yet prove to be nothing more than a temporary blip.