Introduction
We generally encourage thoughts and opinions from our readers through comments, but sometimes we also allow readers to post their opinions or studies on our website through articles if we find them interesting. This is one such particular opinion piece, which is written by Ard Boudeling, who is a Global Manager in the smartphone industry. He was intrigued to share a view on Ben Bajarin's prediction about Samsung exiting the smartphone business within five years with inputs from several people who actually work in the smartphone industry.
Unfair amount of attention given to this particular prediction?
I would like to kick off by saying that a disproportionate amount of attention has been given to Ben’s prediction in a majority of publications, but not to the other statements that he makes. Although it is understandable that the media wants to highlight the controversial aspect of his analysis, the other parts of his blog are accurate and aren’t getting enough media exposure.
If we ignore his prediction for a moment, I believe most of us can agree that his blog is spot-on. All statistics indicate that the ASP of Android smartphones is indeed going to take a dive over the next couple of years. This is partly due to The Next Billion, the large group of people who will accumulate enough wealth to enter the smartphone market for the first time in the coming 2 years. However, there’s also an ASP shift taking place in the higher-priced segments. More and more people will settle for a $300-$400 flagship device from bang-for-buck companies (Innovator’s Dilemma rightly raised).
Ewan Spence, Contributing Writer at Forbes, regularly writes that Meizu and Xiaomi will benefit from these market developments. The growth of other companies and subsidiaries, such as OnePlus, also partly derives from this behavior, and will continue to do so as they get more financial freedom. Samsung will continue to dominate the $600+ Android market, but this part of the market itself will get smaller in the coming years. There will be a big decline in this price segment relatively to other price segments, but a decline in absolute amounts is also expected.
Reasons that I find inappropriate
The more aggressive Meizu’s and Xiaomi’s focus on western markets, the greater the price shift will be. Seeing their main market decline is a serious problem for Samsung's smartphone division, especially since there’s little perspective for them in other price segments. Does this mean Samsung will exit the smartphone market within the next five years? No, that’s rather unlikely. I’ve read numerous reasons why Samsung won’t exit the smartphone market in the next five years, but I don’t necessarily agree with those reasons:
– “Samsung won’t leave the smartphone market because they make great phones” – Although I agree that Samsung makes good phones, it’s not a relevant argument on this topic. The market is not a perfect meritocracy in which only good brands survive and bad brands vanish. If you make great phones, but the industry demand for such devices decreases, you have a problem.
– “People will continue to buy as many $600+ handsets as they’re currently doing” – All statistics indicate the opposite. There’s sufficient evidence for The Innovator’s Dilemma.
– “Samsung can just lower their prices if they want to” – R&D and marketing expenses won’t allow Samsung to lower their prices up to the point where it could solve its main pricing problem, so they can only lower their prices by a small percentage. That, however, won’t help Samsung either. Lowering their prices increases the amount of devices sold, but profit decreases QoQ.
The real reason why Samsung won't give up on smartphones
I, along with many of my industry colleagues, agree that it is unlikely that Samsung will exit the smartphone market within five years. However, our reasoning for making this statement is different. Samsung will face a difficult period and the company's most important aim won’t be to directly make profits on smartphones anymore (although it won’t admit this due to the effect it would have on stock prices), but won’t leave the smartphone market because it knows that smartphones are at the heart of their current ecosystem and will also be the key to building a good ecosystem in the future.
Too many divisions and a large part of Samsung’s future depends on their ecosystem, and it knows that it will collapse without its smartphones. Making a loss on the smartphone sales themselves isn’t enough of a reason for Samsung to leave the market, which will bring their other divisions and future prospects in jeopardy. Samsung currently is very serious about Tizen (the idea is good; execution is questionable) and knows that its only shot for this to reach a broader audience is through smartphones.
Samsung wants Tizen to go mainstream over time, but in order for them to even have a shot at that, they need to solely stay in control of both hardware and software. They will not be able to stop making smartphones themselves and only offer other companies to use Tizen for smartphones. An innovative company, which Samsung most definitely is, would not have been able to develop features such as the Edge if they would’ve only been in charge of either the software or the hardware.
Google is said to be interested in producing (or at least standardizing) SoCs themselves, because they have little say in which features go mainstream and which don't; all of this is in the hands of Android manufacturers who decide to use certain features or not. Google can only set an example once a year with their Nexus-series, but it has realized that it isn’t enough and companies like Apple show that it’s easier for them to implement new features into their devices.
Will Samsung make, or do they want to make, big changes to what they’re doing? This is yet to be seen. J.K. Shin still hasn’t made any major changes, although Kwon Oh-hyun says that change is Samsung’s only hope (in a relatively general statement). We can conclude that Samsung is unlikely to drop their smartphone division due to the results it would have on the company in a broader sense and that it would be disastrous for its future.
We would like to thank Mr. Ard Boudeling for his inputs and for expressing his views with valid points on the matter.
