Samsung's Mobile Chief Feels Pressure Over Sales

Samsung’s co-CEO and mobile chief J.K. Shin is in the hot seat as the company posts its third straight quarter of operating-profit declines. It’s fascinating to watch how quickly things are turning for the conglomerate responsible for nearly one-fifth of South Korea’s Gross domestic product.

It looks like that Samsung is getting down with sales and the company is not earning too good enough unlike Apple. The operating profits were down sharply, decreasing a whopping 25 percent year over year. More importantly, Samsung’s favorite business metric – the market share – is under pressure, too: its worldwide share of smartphones slipped to 25 percent in the second quarter from 32 percent a year earlier.

The Wall Street Journal on Thursday issued a damning outlook for Samsung and its mobile chief.

As the second quarter accounted for 61 percent of Samsung’s total operating profits of about $7 billion, J.K. Shin, 58 years old, is feeling the heat as nervous analysts begin to think about the post-Shin era at the troubled company.
Analysts have also been harsh in recent weeks. In a note to clients in early July, Daniel Kim at Macquarie Securities wrote that the company needs to “formulate a new mobile strategy from a zero base,” and added that such a move could be accompanied by a “change in top management in the mobile division”—a tactic the company has resorted to many times in the past.
Some of Shin’s deadliest sins:
  • His forecast of phone sales was too optimistic, leading to a glut of unsold devices. Tim Cook’s mantra that inventory is fundamentally evil applies here as unsold devices pressure the company’s bottom line.
  • Samsung publicly admitted that higher inventories of unsold smartphones are forcing it to increase marketing expenditures to sell the devices.
  • Samsung is pressured on the high-end by Apple and its iPhone. Worse, the premium market segment is now nearing its inevitable saturation point.
  • On the low-end, Samsung is getting squeezed by Chinese phone makers like Huawei, ZTE, Xiaomi and others. These companies build phones that offer same or similar functionality as Samsung, but are a lot cheaper.
  • Apple is seeing a lot of success in China, its third-biggest market. Apple’s revenues in the 1.33 billion people country rose 13 percent from a year earlier to $9.3 billion.
  • Samsung owes much of its success to aggressive advertising, but now it has to reign in costs. In turn, marketing expenditure could be reduced which would further hurt the firm’s market prospects.
  • The Galaxy S5 seems to be a dud as even Shin recently conceded that the flagshiphandset lacked “eye-popping technologies”
  • Apple’s counterattack is expected in two month’s time in the form of bigger iPhones, new iPads and rumored new products like the iWatch, which will further steal Samsung’s thunder. According to The Korea Times, Samsung is now desperately rushing to bring the Galaxy Note 4 phablet to market before the iPhone 6 launches.
  • According to IDC, (warning: IDC tends to make up their numbers), Samsung’s global smartphone market share slipped to 25 percent in the second quarter from 32 percent a year earlier.
  • Samsung is at odds with its partner Google over UI overlays and its own replacement software for much of Google’s stock Android apps.
  • Tizen, Samsung’s open source, Linux-based mobile OS designed to help the firm distance itself from Google, is going nowhere. Recently, the launch of the Samsung Z, its first Tizen smartphone, was delayed as the firm needed additional time to“enhance the Tizen ecosystem”.
Indeed, Samsung itself in a statement attributed the sales decline to its inventory management, China business and tablet sales, citing increasing competition from low-to-mid-end smartphone makers.

Following the January 2013 Wall Street Journal article entitled, “Has Apple Lost Its Cool to Samsung?” Schiller emailed Media Arts Lab, Apple’s long-time ad shop within TBWA, and told the agency the same thing, that “We have a lot of work to do to turn this around”.

What a difference a year makes for Apple.

Thoughts ?


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