April 5, 2017    5 minute read

Is Samsung on the Right Path?

Different Roads Ahead    April 5, 2017    5 minute read

Is Samsung on the Right Path?

A few days ago, Samsung revealed its flagship mobile phone in an event emphasising performance, innovation and trust. The new Samsung Galaxy S8 has not only attracted people fond of new technological frontiers but also willing to give Samsung another chance, as it was approximately half a year ago that Samsung had to withdraw its’ Samsung Note 7 from the market for battery problems.

The new smartphone has some features like the Infinity Display which probably provokes the greatest interest. Although other brands have also developed edge-to-edge screens, Samsung’s screen seems to have incredible aesthetics, giving the new smartphone a distinct identity.

So, is this the end? Will Samsung beat competitors in the smartphone market with this new device? Or, will Samsung lose in spite of the Galaxy S8 because of its recent scandal and failure with the Note 7?

The Different Sectors

It is important to remember that Samsung is not just a smartphone manufacturer, but has developed products in many other economic fields. In fact, in 2013 their smartphone business accounted for approximately two-thirds of its earnings, while in 2015 these figures decreased to a quarter. Samsung has a wide range of products (flatscreen TVs, semiconductors, etc.) in its portfolio, which diversifies the risk from an investor’s perspective, hence the share price has continued to perform well in spite of the Note 7 scandal. In fact, Samsung may offset the negative performance of the smartphone market with the positive performance in the display market.

For instance, focusing on the possible capital gain without considering dividends, Samsung shares overcame those of Apple, as illustrated in the graph above.

The fact that Samsung has a wide portfolio is critical to its future profits, considering the smartphone market is reaching maturity in many developed markets.

According to the graph, China is becoming an interesting market in terms of sales, while Europe, Korea, Africa and the rest of Asia are losing their attractiveness.

Therefore, Samsung needs to further invest in China and the Americas as they are the markets that still demonstrate rising sales. In particular, many brands such as Apple, Huawei, Lenovo and so on, are investing in China.

However, competing in the smartphone market can no longer produce the same profits that firms were accustomed to, considering the economic slowdown of the Chinese GDP. Many analysts claim that Apple’s dependence on iPhone sales could cause problems in the long term.

Different Strategies

This is why Apple is looking to widen its portfolio with some new products which could offset the decline of the smartphone market. Another brand that signals the stagnation of smartphone sales is Lenovo, which has decided to focus on the “Internet of Things” in anticipation of future demands.

On the other hand, Huawei has incredibly risen its market share in the smartphone market, but the company also invests in 5G technology.

All this to say that several brands understood that smartphones could no longer be a core business. From this point of view, Samsung is one step ahead, as its number of patents in many different technological fields continue to demonstrate.

Samsung has an incredibly high rate of innovation and its success in semiconductors and display panels represent proof of how successful the company has been to “create” demand. However, even with a strong portfolio and a stable financial position, Samsung needs to reestablish the trust it lost in last year’s scandal.

The launch of Galaxy S8 is a very delicate threshold. If it sells well, Samsung will gain the same attractiveness that it had always held, if not, this could predict a slow decline in other strategic business areas. This is why Samsung needs to beat its main competitors in the smartphone market, this year more than ever before. Can it do this?

In the last quarter of 2016, with 17.8 % of the global market in smartphone sales, Samsung was slightly behind Apple. So this year, with the Galaxy S8 Samsung may become the best seller on the market. Moreover, the Galaxy S8 will use a technology which was already available for the last generation of Galaxies.

This is the VR technology, and actually, it represents one of the most interesting characteristics of the Samsung Galaxy Series.

Conclusion

Virtual Reality will be used in many fields in the near future due to its huge potential. In order to be on the “top of the wave”, Samsung needs to support the development of this technology and integrate it more and more with its ecosystem. Other smartphone brands are still not using this technology as compared to Samsung.

So, in the end, is this year going to be successful for Samsung or not? Will the new Galaxy S8 make a significant difference? Undoubtedly, Samsung has had a difficult time since its scandal and has accrued negative publicity and lost customers.

However, Samsung remains one of the most influential brands in the market. Generally speaking, few other companies have Samsung’s economic power. Even fewer are able to suffer such losses and recover without significant consequences.

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