Today, Samsung Electronics, one of the world’s biggest smartphone makers, announced that its 2014 fourth-quarter profit likely fell 37.4 percent. By this, the tech giant suffers a year of decline for the first time since 2011, and a fourth consecutive quarter of market share losses.
The South Korean company said its fourth-quarter operating profit is likely to be $4.74 billion, meaning its 2014 profit will be around $22.7 billion, the weakest it has been in three years.
Although factors like slowed global economic growth play a role in Samsung’s recent struggles, the real threat to its market share and profit is coming from cheaper Smartphones from Chinese makers Huawei and Xiaomi, and Africa-focused Hong-kong headquartered Tecno. These companies, armed with significantly less expensive and relatively similar quality products and features are chopping off the crown of high-end smartphone kings like Samsung and Apple.
Shrinking Market Share
According to International Data Corporation (IDC), quoted by The National, Samsung’s market share across the Middle East and Africa dropped by 10 percent to just below half of both markets at the beginning of 2014. Samsung’s plummeting African market share can be largely attributed to the rise of Tecno which has literally taken over Nigeria, the Continent’s largest tech market.
The IDC’s data also showed that Samsung lost 7 percent of the global smartphone market share to 24.9 percent in the second quarter of 2014, while Chinese Tech Company Huawei jumped from 4.3 percent in the second quarter of 2013 to 6.7 percent last year.
“Despite their growth in unit sales they are not keeping up with how fast the market is growing, which has been captured by other vendors,” said Nabila Popal, the research manager of handsets and displays at IDC. “Their market share is declining,” he added.
Another new big hitter is Chinese maker Xiaomi, which has quickly risen to become the world’s No.3 smartphone maker. According to Chief Executive Lei Jun, who was quoted by Reuters, Xiaomi sold a total of just over 61 million phones in 2014, up 227 percent from a year earlier. The company’s pre-tax sales hit $11.97 billion, up 135 percent from 2013. Xiaomi’s products and operations, still focused in China, are set to expand further this year, meaning a lot more percentage would probably be knocked of the market share of the “big boys”.
What all these budding rivals to Samsung and Apple have in common is their more affordable quality phones. With phones boasting virtually the same, and even better features, targeted at low income markets, companies like Tecno, Xiaomi and Huawei are not only reducing the big players’ market share but also enlarging the community of smartphone users. A clear example of this is in Africa where smartphone penetration is rising exponentially thanks to more affordable devices.
Time for a new strategy?
Samsung has already joined the dual sim feature by making products like the Samsung Duos. The dual sim feature is very popular in lower income markets due to its cost effectiveness of eliminating the need for two devices. The Duos is however not as classy the regular Samsung products and even considered inferior in quality, making it very weak in the battle with the cheaper products of rival phone makers. These makers are largely considered on par in terms of quality with the regular high-end devices.
As the economic growth in the high income markets of the west tightens, and investors start switching attention to fast growing lower income markets, Tech giants like Samsung and Apple will have to go the more affordable path or risk losing out of emerging markets boom entirely.