Three years ago, Samsung’s smartphones were about having a suitable model available for every type of customer. The company offered dozens of models across the different markets, providing customers with many, many choices of device. There are different families in the Samsung Android range, such as the premium build but middling specification Galaxy A family, the entry level Galaxy J family and the flagship Galaxy S and Galaxy Note ranges. However, sales were struggling: the business was producing model after model of similar but not identical handsets and each was selling in relatively small numbers but still requiring the design, development and tooling to be put into production. Furthermore, 2013’s Galaxy S4 and 2014’s Galaxy S5 flagship models did not sell as well as they were hoped. Samsung’s policy of pushing numbers higher – each year had a more powerful processor, bigger and higher resolution display, and more megapixels for the camera – was not working.
In recognition of the pressure on the business, things started to change. We’ve seen management changes over the last two years and a reduction in the number of models. Samsung opted for best in class rather than highest numbered components for 2015’s Galaxy S6 flagship, a trend which has continued for 2016’s Galaxy S7, which by way of example comes with a 12MP rear camera (compared with a 16MP rear camera for the Galaxy S6) and in some markets a quad core processor compared with the octa-core processor of the Galaxy S6. Samsung have adopted metal design and AMOLED panels – something of a Samsung speciality – are available in the lower and mid-range models.
In the first quarter 2016, Samsung’s smartphone business enjoyed its strongest profit for almost two years – although it is far too soon to determine if the business is through the worst.The Galaxy S7 launch was deliberately moved forward into the first quarter and it remains to be seen how the rest of the year pan out. Regardless, Samsung has another battle: worldwide handset sales are weakening. Nevertheless, it was important that Samsung stabilise sales as Kim Gae-youn, Samsung’s smartphone product planning vice president explained: “We’ve now gotten to a point where we can secure a baseline profit even if the market stagnates, so long as we don’t make a bad mistake. I’m confident we can hold our ground.”
There is still some way to go. Samsung’s product family still has many models, even if more are using shared components with other devices. Industry research shows that Samsung has reduced its portfolio by around one third. The business faces massive internal resistance: individual divisions do not want to lose their product family. Kim reports: “There are also different needs depending on individual markets, so regional sales staff naturally can’t be happy when the company moves to rationalize and restructure from a global structure. The transition process is painful.” One unnamed Indian Samsung executive explained that the number of different smartphones meant things were confusing for customers.
One key market remains difficult for Samsung: China, where the business is ranked sixth in terms of sales. Having offered middling level handsets to Chinese customers for years, in 2016 the business is going to change and offer high end devices, costing upwards of $500. Here it believes it has the ability to innovate devices and compete with local manufacturers.