Samsung is the world’s number one smartphone manufacturer by volume and the world’s number two by profit, so when the company starts making moves that suggest it sees a change coming in the way that we buy phones, it’s time to sit up and take notice.
First of all an uncredited interview in the Korean Times, reported by Android Authority, suggests that Samsung is going to start backing away from the budget end of the market. That in itself is interesting. New competition from China has meant that Samsung has had to work disproportionately hard to keep its lower end handsets competitive. Even so, the growth of Huawei, ZTE and One+ along with a raft of less well known names, has created tough market conditions for Samsung.
Abandoning this low end market will improve Samsung’s profit margins, but the effect is likely to be a short-term panacea.
Recent phones from the same companies that have been making life difficult at the bottom end of the market, have shown that they can compete at the middle and even the premium end too. So whilst Samsung’s GS7 is far and away the best premium Android phone you can buy, the gap between it and the Huawei P9 is far smaller than the gap between the GS5 and the P6 ever was. And the GS5 was hardly a well received phone. For the GS8 and P10 those positions might actually be reversed.
This is where Samsung’s investment in new screen and memory fabs starts to make sense. Yes it will continue to build phones, and class leading premium ones at that. However now it will look to profit from component supply in order to make up for the revenue lost in handset sales.
The arrangement to sell AMOLED panels to Apple fits this plan perfectly. I’m sure that Apple would have loved to get Samsung’s panels into its flagship devices, there’s no question that they are the best available. The problem was twofold.
Firstly capacity, Samsung would not have had the capacity to manufacture its best panels in the volume that would support the Galaxy S and Note lines and provide for iPhone supply as well. Secondly, given that the iPhone and Galaxies were competing for the same customers, supplying Apple with panels would have been a self-harming move. And of course Apple would not have found second best palatable.
Now if Samsung is looking to a future where its smartphones are sold on the basis of premium features and a healthy profit it can be less concerned about competing with Apple and sell its best screens to Apple and rake in the profits there instead.
Where does this leave the rest of the market? It seems inevitable that Huawei is going to end up with the largest slice of the smartphone market, but like the PC and the tablet markets before, smartphones are inevitably going to hit the brick wall as global sales growth stalls.
In a market where iteration has replaced innovation, commoditisation of the smartphone and extended life cycles for the phones we do have, inevitably means that a smaller number of players can be accommodated. Cherry-picking profitable market segments and focussing on component supply seems to be a solid strategy.
In that aspect at least, the news coming out of Samsung makes perfect sense.