The end of the war was dramatic, although it was months coming: Samsung reported a staggering 20% drop in sales and an even worse 49% collapse in its profits because its flagship Galaxy S5 phone — one of those big Android phablets — saw big declines in the last quarter.
The reason: Consumers held off buying them because Apple launched its new iPhone 6 and iPhone 6 Plus phones in September, in big-screen sizes that competed directly with the Galaxy S5 and the Galaxy Note 3 and 4, Samsung’s other giant-size high-end models, the Financial Times says.
Now, Samsung has made a major shift.
It’s the price that is key: Samsung is basically saying it suddenly got a lot harder to compete against iPhone on high-end prices with top-flight models, so it must compete instead against cheaper low-end Android manufacturers like China’s Xiaomi by offering quality devices at reasonable prices.
It might be good business, but it’s gotta be painful for Samsung.
They’re probably delighted over at Apple, too.
For years, Apple stayed away from the big-screen phone category, apparently in the belief — as founder Steve Jobs once said — that Apple’s small 3.5-inch and 4-inch iPhones were just the right size for consumers because they could use them with one hand.
That was Apple’s big mistake: Consumers did want big phones, and Apple basically ceded two years or more of big-screen sales to Samsung.
In 2013, Apple finally realised that big screens were driving growth in phone sales. And in September this year it launched two phones to address that. That move appears to have killed off much of the demand for Samsung’s big phones.
Samsung execs admitted it on their earnings call, per the Financial Times:
“Our high-end smartphone sales result was somewhat weak,” Kim Hyun-joon, a senior executive at the IT & mobile division, told analysts on a conference call.
Samsung’s problem now is that it’s being squeezed in the middle.
The company has a huge range of cheap, low-end Android phones that it sells a lot of (as free wireless contract upgrade phones, for instance) but makes very little money on. Chinese Android manufacturers have been gutting that business by making super-cheap Androids that are actually nicely designed and quite good. Xiaomi is probably the most fascinating phone company on the planet right now, with its unbelievable cheap Androids that have superior design.
Western consumers will be shocked to know that Xiaomi is now the third largest phone manufacturer by shipment volume worldwide — and it hasn’t even started selling phones here yet!
Xiaomi stole Samsung’s low-end business, in other words, while Samsung was trying to solidify its lead as the high-end big screen leader.
Now it looks like the market is moving away from Samsung in the high-end war with Apple. It will probably continue to supply its flagship Galaxy S5 and Note 4 phones (they’re great phones by the way, I’ve tried them both and prefer them to iPhone).
But Samsung’s new fight must now be based on price and quality in the Android market, not the iPhone market.
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