Reeling from the impact of cheaper Chinese rivals at the low-end of the market and Apple at the high-end, Samsung said this week that it would cut the number of smart phone models it makes next year by 25 to 30 percent. The firm is still the world's largest maker of smart phones, but it has seen its profits and growth plummet this year.
"In 2015, we will lower the number of smartphone models by one fourth to one third compared to this year," Samsung senior vice president Robert Yi said during a company conference on Tuesday. "This will allow us a chance to lower the prices of [remaining models] through mass production," said Yi. "In low- to mid-end products, price is the most important, and for high-end products, it is innovation."
The move comes after a quarter in which Samsung saw its profits fall an alarming 49 percent. As bad, mobile device margins fell to 7 percent in the most recent quarter, the lowest since Samsung introduced its first Galaxy flagship handset in 2009.
Samsung's issues may be new to it, but they aren't necessarily unique. Companies such as Blackberry and Nokia experienced similar issues years earlier, and found that their top-heavy infrastructures were no match for the quickly-changing industry trends brought on by the iPhone. After struggling for years, Nokia infamously was forced to sell its smart phone business to Microsoft earlier this year, and Blackberry has described a future in which it exits the smart phone market to focus on services. These two companies previously ruled the smart phone market.
Today, Samsung is still dominant, but it's falling fast. And it has been forced to fight a two-front war with little hope of success in either.
On the low-end, a growing horde of inexpensive challengers, most from China—and including firms such as Xiaomi, Huawei and Lenovo—have been busy unseating Samsung as the top seller of smart phones in that market, and they have aggressive international expansion plans as well. Here, Samsung says it can compete on price, and notes that strategies that work in the unique China smart phone market won't necessarily work elsewhere.
And at the top-end, perennial Samsung foil Apple has closed the gap by offering a phablet-class iPhone and opening up its mobile OS, called iOS, to third party extensibility. These changes together address the biggest criticisms of iPhone, and could stem the flow of Android defections from Apple's platform. Apple can afford to take a smaller and more lucrative slice of the market, but today Samsung relies on volume.
To better compete with Apple going forward, Samsung says it will offer more innovation in the high-end of the market. Often seen as a copycat, Samsung has of course offered a few innovations throughout the years, and it can arguably be credited with inventing the phablet form factor. And the firm will try to continue this streak with display innovations including the wraparound side screen on the Note Edge and, in 2015, at least one product with a flexible display.