Samsung may have posted an unexpected increase in its earnings in the third quarter. However, a large share of those profits can be attributed to the sustained growth of Samsung’s semiconductor business.
It was also the first time in two years when the South Korean company posted operating profits and even announced a massive share buyback plan worth $9.9 Billion after that. Although, the mobile division also showed a hint of profits after a long time, but it is still largely struggling, whose contribution to the operating profit fell to 39 percent in the January-September period as opposed to the 68 percent in 2013.
To revive the mobile business segment, Samsung recently made major changes in the leadership of the business. It has brought in Dongjin Koh as the new president of company’s mobile communications unit. Koh replaced JK Shin, the co-CEO of Samsung Electronics who will continue as the Head of mobile division and will also look after the long term strategy.
Previously, Koh was heading the mobile research and development wing and was behind the development of Samsung Pay, Knox and Tizen. The decision to bring him at the forefront of mobile business is seen as the Samsung’s new focus on software by numerous experts.
In fact, according to a report published by Reuters, many unnamed executives who have worked with Samsung, have pointed towards the obsessive focus on hardware by top executives at Samsung as a major reason behind so little innovation by Samsung on the software front.
Samsung’s upper management just inherently doesn’t understand software. They get hardware – in fact, they get hardware better than anyone else. But software is a completely different ballgame.
said a former employee.
According to experts, this focus on short-term gains by hardware on the expense of long-term vision of developing valuable services and software platforms is the leading cause of Samsung’s dwindling mobile business. This is because, with the rise of so many low and mid-end companies in the smartphone market, Samsung has now little to differentiate itself from its competitors.
Samsung has already begun to offer new services such as Samsung Pay, Tizen OS as well as new initiatives in the field of Internet of Things. But as far as the overall mobile business is concerned, it is going be a tough road especially with the competition from Apple in the premium segment as well as from lower and mid-range segment companies like Huawei and Xiaomi.
Especially, Apple has been witnessing an aggressive growth in smartphone sales in recent times which have slowly started to close the gap and reach Samsung numbers.
If we look at the numbers of second quarter, Apple sold 48 million smartphones in the period with a y-o-y growth of 36%. Now, Samsung still led in terms of the total number of phones selling 72 million phones but this was after a 5.3% dip from last year.
Furthermore, in the same period, the market share of Samsung fell to 21.9% from over 26% last year and over 30% in 2013. On the other hand, Apple witnesses an increase in market share which rose to 14.6% from 12% last year. This was mainly as a result of Apple’s lead in the major market China and the popularity of large-screened iPhone 6 and 6 Plus phones in the market.
Moreover, the overall smartphone market is showing signs of a slowdown in growth. Markets like China as well as other developed countries are almost saturated and the only scope of growth is being shown by the developing markets.
So, the companies are nowadays not only focussing on offering smartphones in the emerging markets but also on offering better software-based services and platforms in the fairly saturated markets for retaining the customers and preventing them from switching the brands.
This is something which is a cause of concern for Samsung who has traditionally adopted hardware approach to just build and sell phones. In the changing times, to revive its mobile business, it has to focus more on software-based platforms and services to its customers to retain old customers as well as attract new customers.