For four years, Samsung Electronics has basked in the success of its Galaxy smartphones, making billions of dollars competing with Apple in the premium mobile market.
The coming years are set to be more sombre for the South Korean tech giant as it is forced to slash prices and accept lower margins at its mobile division in order to see off competition from rivals including China’s Huawei Technologies and Xiaomi in the mid-to-low end of the market.
Behind Samsung’s reality-check is the fact it is stuck with the same Android operating system used by its low-cost competitors, who are producing increasingly-capable phones of their own.
“The writing has long been on the wall for any premium Android maker: as soon as low-end hardware became ‘good enough,’ there would be no reason to buy a premium brand,” said Ben Thompson, an analyst at Stratechery.com in Taipei.
Margins at Samsung’s mobile division fell to 10.6% from 15.5% a year earlier during the second quarter of 2015, despite the April launch of its critically acclaimed Galaxy S6 range.
It remains the world’s biggest smartphone maker but it is Apple that is reaping most of the rewards. While the US giant’s smartphone sales in its last financial quarter fell short of market expectations, it is still estimated by some analysts to earn 90% or more of the industry’s profits.
Samsung said last week that it will continue trying to maximize profitability and market share, disclosing plans to launch new larger-screen premium phones as well as more bargain-priced handsets.
Investors and analysts say the group is right to dig its heels in for a business that continues to generate piles of cash and drives sales for its components divisions.
But they say Samsung will not be able to compete with Apple in the premium market based on hardware and will continue to trail the US firm in the absence of a major technological breakthrough.
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