Samsung Electronics is losing smartphone ground not only to cheaper
Chinese rivals but also at the high end to Apple, a survey showed, in an
ominous sign for the South Korean giant as Apple readies to launch its
next-generation iPhone 6.
Samsung
last week gave second-quarter earnings guidance that was far weaker
than expectations and is on track for its worst quarterly profit in two
years, a performance the company attributed in part to price competition
and higher inventory levels in China.
Research firm
Counterpoint’s survey of 35 markets accounting for nearly 90% of global
sales found that sales for the eight-month-old iPhone 5S stood at 7
million in May, compared with about 5 million for Samsung’s flagship
Galaxy S5, which was in just its second full month of sales after a late
March release.

Counterpoint said that the Galaxy S5 appeared to be doing worse than
the Galaxy S4 had done in its early launch against the iPhone 5, with
each selling about 7 million units a month. The data measure retailers’
sales to consumers as opposed to typical industry data that look at
shipments made by the manufacturer.

Galaxy S5 sales probably remained at about 5 million units in June,
said Tom Kang, Seoul-based analyst for Counterpoint. He said the Galaxy
S5 fell short of market expectations in terms of display quality and by
using a plastic case.

“They made one mistake, one product that
didn’t hold up to expectations and they are paying the price,” he said
in a phone interview. “They will have to move forward and leave behind
what has failed and focus on the next product.”

The data
suggests that Samsung’s problems run deeper than just the inventory
buildup in mid-to-low tier devices that the company reported earlier in
the month after disclosing weaker-than-expected second quarter guidance.

Samsung declined to comment on Counterpoint’s data or disclose shipment
figures for the Galaxy S5, though a Samsung executive in April said
that the new flagship device was expected to outperform its predecessor.

“We will strengthen our product competitiveness by reinforcing our
premium brand reputation, powerful product line-up, and cutting-edge
technology,” the company said in an email statement.

Data from
research firm Canalys showed that Samsung’s market share in the first
quarter of 2014 fell to 18% from 20% a year earlier, while the likes of
China’s Xiaomi and Lenovo made gains.

Analysts said Samsung’s new products such as the S5 did not offer
enough to entice consumers to pay a premium over cheaper alternatives
that were rapidly improving in quality.

“Most major smartphone
brands worldwide are battling brand fatigue at the moment,” said
Strategy Analytics analyst Neil Mawston. “Consumers love their
smartphones but almost all hardware, software and apps now look, feel or
cost the same.”

Apple, however, continues to be able to charge
premium prices. Its iPhone 6, expected to be launched as soon as
September, is anticipated to sport bigger screens which would encroach
on what has been a key Samsung advantage.

The Counterpoint data
also suggest that Apple’s smartphone sales have remained resilient even
as anticipation for the new product launch builds. The US company is
expected to report its fiscal third-quarter results later this month.

Slowing market

Some slowdown for Samsung was expected following a record year of
profits in 2013. Strategy Analytics forecasts global smartphone
shipments growth this year to slow to 21% from 41% in 2013, while faster
growth for cheaper smartphones was also expected to undermine margins.

Samsung’s worse-than-anticipated operating profit guidance of 7.2
trillion won ($6.96 billion) for the April-June period caught analysts
by surprise. Thomson Reuters I/B/E/S survey shows that 28 of 50 analysts
polled have cut full-year profit forecasts for the company since the
guidance was issued on July 8.

A worker at a South Korean
carrier shop in central Seoul said sales of the iPhone 5S and the Galaxy
S5 were roughly equal at his store, even though the Apple device had
been on the market since October in South Korea.

“iPhone sales have been consistent and the differentiating factor for
it is the design,” said the worker, who only wanted to be identified by
his surname Kim as he was not authorized to speak to the media. “There
isn’t much difference in the design of a Galaxy phone or an LG phone.”

Some analysts said Samsung should bite the bullet and cut prices across
the board, trading short-term margins for market share, while others
say Samsung should look at more innovative change such as introducing
flexible displays.

Counterpoint’s Kang said Samsung may also need to consider adopting a new brand for its high-end products.

“The Galaxy brand has been weakened because it’s selling $100, $200,
$300 phones while Apple only sells $400 and above, so they might even
need to throw away their Galaxy brand,” he said.

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