With Low-Cost Rivals Surging, Samsung Stumbles Again

With Low-Cost Rivals Surging, Samsung Stumbles Again

And Apple's successes aren't helping either

Samsung, the world's biggest maker of smart phones, has now lost ground for four consecutive quarters as low-cost Chinese rivals chip away at both its market share and the average selling price it can command per handset. And the firm warns the problems will continue well into 2015.

To be clear, Samsung continues to sell more smart phones than before. But like Apple, which also experiences year-over-year unit shipment increases, Samsung is still losing market share because low-cost Chinese rivals are growing so quickly. Likewise, with sales of high-end handsets slowing, Samsung can no longer command the high prices it one enjoyed. And its average selling price (ASP) per unit is going down along with its profits.

Indeed, Samsung will suffer from an astonishing 60 percent year-over-year drop in profits in the current quarter: It estimates that it will earn a profit of approximately $3.8 billion, compared to $9.6 billion a year ago. This is the fourth straight quarter in which the firm's profits will decline year-over-year. And revenues will decline in the quarter as well, by 20 percent to about $44 billion.

In China, 8 Chinese hardware makers now control 65 percent of the world's largest market for smart phones. Worse, Samsung has slipped behind China-based Xiaomi to become only the second biggest maker of smart phones in that country.

To help regain some lost ground, Samsung pushed up the release of its next phablet in China, the Galaxy Note 4, from October to September, because the Chinese market has a disproportionate interest in these larger smart phones. But the move was also aimed at undercutting Apple, whose phablet-sized iPhone 6 Plus had been delayed in China due to spurious regulatory requirements.

Unfortunately for Samsung, none of this may matter: Apple sold over 10 million iPhones 6 handsets (including the more normally-sized non-Plus iPhone 6) over its opening weekend without relying on China sales, and it's now quite likely that Apple, not Samsung, will have the biggest phablet launch there this fall. And now cleared of regulatory hurdles, the iPhone 6 and 6 Plus go on sale in China on October 17.

Squeezed on the high end by Apple and everywhere else by cheaper China-based smart phone markets, Samsung may never regain its footing in that country. The question is whether Samsung's problems in China impact it around the world as well.

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