Samsung Electronics released its preliminary third quarter earnings report last Tuesday: third quarter earnings will be lower than market expectations. Samsung Electronics did not attribute this to the decline in mobile phone shipments, but explained that it spent too much on marketing during this period, and the increase in low-end phones and the decrease in high-end phones also affected overall revenue.

In response, the media generally emphasized the sharp decline in Samsung's expected revenue. 60% seems like a number that is suitable for headlines. However, Samsung also provided sales data. The figure below shows Samsung's expected revenue over the years after adjusting for exchange rates.

Here, Apple's revenue data is compared together. The two charts use the same interval value (each horizontal grid line represents $10 billion per quarter). The chart on the right shows Samsung's revenue data by department, and the chart on the left shows Apple's revenue data by product in the same time period. We can clearly see that Samsung's mobile phone sales are still higher than Apple's this quarter. The reason for Samsung's decline in revenue is partly due to the decline in mobile phone prices, and partly due to the intensified competition caused by the increasingly powerful competitors (there are very few markets where competition declines).

In this case, maybe we shouldn't blame Samsung too much.

What Samsung needs to answer is not the financial performance of one quarter or several quarters, but how to continue to succeed in the current market competition.

for example:

● Lack of a software platform that is fully under its control

● Lack of control over the application ecosystem

● Lack of services

● Lack of integration of software, services and hardware

● Lack of differentiation from other manufacturers

● In the low-end market, it is impossible to eliminate the interference of competing manufacturers

● The commoditization model for all market segments needs to be updated

Samsung is now a very large company. Many large companies have become small businesses in the process of development. Perhaps Samsung is on the same path.

After the first half of the article was published, I received several questions from the NewsFactor website. I have now added the answers as the second half.

1. Do you see a chance for Samsung to turn things around? If so, where is the opportunity?

The smartphone industry was a huge opportunity for Samsung, and it has fully seized this opportunity. Unfortunately, however, it is a difficult industry to control in the long term. There are many losers in this industry, and there are no long-term winners.

Samsung's operating model seems to be to enter the smartphone market as a fast follower after it has been established, taking advantage of the capital-intensive effect.

But this strategy has worked for other companies in the consumer electronics space as well (exemplified by the failures of Sony and other Japanese companies). If they don’t change their approach, their business inflection point will depend on creating new opportunities or new product categories. Wearables may be such an opportunity, but it may not be as big as the smartphone industry.

2. What is the main factor that led to Samsung's decline? Which competitor poses the greatest threat to Samsung?

The fast follower strategy masks Samsung’s own limitations: strategically it implies temporary and impermanent nature. It is only a matter of time before a new smartphone maker invades Samsung’s market in the same way that a fast follower invaded an innovator’s market.

Latecomers like Chinese smartphone makers will take more market share. In 2011, I saw Huawei as the Samsung of 5 years ago (although I didn’t expect latecomers like Xiaomi and Lenovo to do so well). It is easier for low-end smartphone providers to expand into the high-end market, but it is not so easy to go the other way because of the decreasing profit margins.

3. You mentioned that all of Samsung’s markets are seeing commoditization. What’s the best way to address this?

Commoditization is largely inevitable. The way for a company to survive is to ensure that it can create new businesses or solve new problems. In the market, there will always be manufacturers who hope to ensure long-term marginal profits through their own "brand". But this did not help Nokia, Sony or Microsoft.

A brand is valuable only when it has connotation, but too often connotation becomes a fading product.

Simply put, Samsung needs to create new categories or businesses. What they are facing now is that they need to control the platform and infrastructure. Currently these are outside of their control, and I don't know how they can gain control.

4. Samsung has developed a faster 60GHz Wi-Fi wireless technology. Do you think this technology can provide the turnaround momentum that Samsung needs?

Of course not.

This is a technology that is continuously improving. What Samsung needs is a disruptive improvement. Disruptive improvement means a new business model. In other words, it means Samsung needs to create a new way to make money.

Horace H. Dediu is the founder of independent analysis firm Asymco, which focuses on analyzing the successes and failures of the evolution of the mobile computing industry using Apple as a dimension. Dediu's analysis and comments have been frequently cited by media such as The New York Times, Financial Times, and Bloomberg TV. In addition to Asymco.com, Dediu also comments on the mobile industry in a weekly podcast, Critical Path, and has written a book of the same name. Dediu's former mentor at Harvard Business School, Christensen, author of The Innovator's Dilemma, was also a guest of Critical Path.

Source: Curiosity Daily Translation: Xu Tao Tang Yunlu Title Image: BGR