Release of Samsung Galaxy S6 may affect performance of iPhone 6

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HONG KONG — After nearly two years of suffering at the hands of upstart rivals and established industry giants, Samsung may finally be on the mend.

Its new high-end smartphone, the Galaxy S6, has had strong advance sales. has replaced Qualcomm as the maker of chips for the iPhone, made by its competitor, Apple. And a streamlined slate of product offerings could help compete with the low-end devices dominating the market in China.

Evidence of a potential turnaround could also be found in the beleaguered South Korean manufacturer’s bottom line: Samsung said on Tuesday that expected its earnings for the first quarter of 2015 to show that the decline in its operating profit was steep but was beginning to level off.

A resurgent Samsung poses a direct challenge to China’s smartphone brands, which find a way to compete outside of their home market with major multinationals. The early popularity of the S6 could make it difficult for Chinese companies to do that with high-end offerings, said Bryan Ma, an analyst at the research company IDC.

“You look at Huawei and ZTE” and other Chinese companies, Mr. Ma said. “Their ambition is to move out of the low end into the premium end, so they’re trying to move up that curve as well.”

Mr. Ma added that it would be difficult for Samsung to make money at the lower end. “It’s such a bloody price war down there,” he said.

Intense competition at the low and high ends of the smartphone market has eroded Samsung’s status as the world’s best-selling smartphone brand, according to IDC.

Some of Samsung’s biggest troubles have come from China, where it has struggled to compete in the low end with companies like Huawei and Xiaomi. The period of torrid growth in China’s market is moderating, but analysts expect new booms in other heavily populated developing markets, like India and Southeast Asia.

For Samsung, that sets up new fronts of competition where the company can take advantage of its brand recognition, marketing and experience selling across the globe to push back against Chinese rivals. For instance, in India in the fourth quarter of last year, Samsung had a 22 percent market share, compared with Xiaomi’s 4 percent, according to IDC.

The release of the S6 may help offset the stellar performance of the iPhone 6, while also putting more pressure on smaller rivals trying to make a name — and bigger profits — for themselves with flashy, expensive flagship devices.

Analysts say the S6, which boasts new features like a metal casing and a version with a screen that curves over the sides of the phone, provides much-needed stylistic freshness.

“I think the reason Samsung struggled last year is they just looked boring,” said Peter Yu, an analyst at BNP Paribas. He pointed out that the Galaxy model from 2014 was little different from the 2013 version.

“Everyone caught up,” he said. “When it came to Android phones, everything just looks the same. If you cover up the brand, you couldn’t tell the difference between the Chinese smartphones and the Samsung smartphones.”

The way the S6 stands out from the crowd help the company improve sales at the top end, where it makes the bulk of its profits. Samsung has not released official figures, but the South Korean news media have reported that the company has already sold 20 million units of the S6 in advance to cellphone carriers. The S6 goes on sale to the public on Friday.
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Mr. Yu said Samsung’s new strategy with its lower-end and midrange smartphones could also help the company this year. Where before Samsung offered a large variety of lower-end smartphones, it a single series — an attempt, according to Mr. Yu, to take advantage of economies of scale and increase profit margins.

He said that Nokia used to make 20 percent profit margins on phones that it sold for 40 euros, or about $44. “I think Samsung is trying to emulate that,” Mr. Yu said.

On the semiconductor front, Samsung be helped both by smartphone companies’ buying more and more memory chips, and by the resurgence of the company’s microprocessor business.

Lee Seung-woo, an analyst at IBK Securities, said that in particular, Samsung’s supplying Apple with the A9 chip for the next iPhone would be a big boon to profits in the second half of the year. It is not certain how many chips Samsung deliver to Apple, but given the popularity of the iPhone 6, which uses the A8 chip, the is likely to be in the tens of millions.

But Samsung’s television business could struggle, analysts said, and the company faces huge challenges competing with Apple.

Ben Thompson, an independent analyst at, said the of the S6 phone was far from guaranteed. Samsung is “testing the thesis that phone quality matters,” he wrote in an email. “My thesis is that it’s the software that Apple its lock on the high end (plus brand), so I’m skeptical.”

In a news release on Tuesday, Samsung said its operating profit in the first three months of 2015 most likely fell about 30 percent, compared with the same period in 2014. That suggests a moderation from the final quarter of last year, when operating profit fell 36 percent from the same period a year earlier.

Despite the drop, Samsung exceeded analyst expectations by forecasting an operating profit of about 5.9 trillion won, or $5.4 billion, in the first quarter, down from 8.5 trillion won a year earlier. Sales were estimated at about 47 trillion won, down roughly 12 percent from 53.7 trillion won a year earlier. The figures are preliminary; Samsung post final earnings later this month.

Market share statistics show how much Samsung’s status as the global smartphone champion has been eaten away. In a report for the fourth quarter of 2014, IDC noted that Apple’s total unit sales nearly tied Samsung’s. In the same period a year earlier, Samsung sold 33 million more handsets than Apple.

If Apple has nearly tied Samsung in device sales, the Chinese upstarts that have been competing with Samsung in the lower-end segment lag far behind. In the fourth quarter, Samsung’s global market share was 20 percent, compared with roughly 4 percent to 7 percent for each of its major Chinese rivals: Lenovo, Huawei and Xiaomi.

“What remains to be seen is how the vendors beyond Samsung and Apple will assert themselves,” Ramon T. Llamas, an analyst at IDC, wrote in the report. ”With Lenovo acquiring Motorola, and Xiaomi having greater aspirations beyond China, the competitive pressure will come more from below and less from above,” he added. “This will make the smartphone race continuously competitive as 2015 shapes up.” (NY Times)

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