China’s Xiaomi Moves In on Samsung, Apple

30 Oct 2014 | Author: | No comments yet »

China rising: Xiaomi becomes world’s third biggest smartphone manufacturer.

Samsung Electronics Co. said its third-quarter net profit nearly halved, as its mobile division continued to suffer from heightened global competition.Samsung’s Galaxy A series, the long-rumoured range of metal-bodied phones by the South Korean manufacturer, is hitting the market in China in November.Xiaomi is commonly described as “China’s Apple” and founder Lei Jun as “the Chinese Steve Jobs”, yet the company is only four years old and did not release its own smartphone until 2011.

Here’s a look at five key takeaways from the company’s difficult quarter: For the past year, there had been signs that Samsung’s grip on the No. 1 spot in global smartphone sales was being eroded by its rivals — particularly from Chinese companies such as Huawei Technologies Group Ltd. and Xiaomi Inc. According to a report by Korea IT Times, Samsung plans to release the low-priced smartphone lineup — Galaxy A3, Galaxy A5 and Galaxy A7 — in China next month. Research firms IDC and Strategy analytics both now place Xiaomi in overall third place for smartphone shipments in the third quarter of 2014, more than tripling shipments year-on-year overtaking South Korea’s LG by between 0.4m and 1.2m smartphones. “Xiaomi was the star performer in the quarter, capturing a record 6% marketshare and rising into third place in the global smartphone rankings for the first time ever,” said Neil Mawston, executive director of Strategy Analytics. “Xiaomi’s Android smartphone models are wildly popular in the Chinese market and it shifts millions of them every quarter through its extensive online and operator channels.” “Xiaomi’s next step is to target the international market in Asia and Europe, where it may face stronger headwinds of low brand awareness and technology-patent challenges next year,” explained Mawston. In the same period, Samsung shipped 78.1m smartphones and Apple 39.3m, while Lenovo shipped 16.9m and LG 16.8m, which IDC describes as a tie due to the variability in the data. On a conference call with analysts, Kim Hyun-joon, a senior vice president at Samsung’s mobile-communications business, said that the company’s new goal is simply to maintain a sustainable double-digit percentage margin — a comedown for a division that hasn’t dropped below 10% since early 2010.

As smartphone challengers multiplied, analysts began turning their attention to Samsung’s semiconductor and components business as a way for the company to offset some of its smartphone declines. However, global smartphone shipments are still increasing thanks to developing markets such as India and China, which are still growing at 30% collectively according to IDC’s data. “In these markets, smartphone price points are making mobile computing possible where we once expected feature phones to remain dominant.” explained Ryan Reith, program director of IDC’s Worldwide Quarterly Mobile Phone Tracker. “This is great news for overall volumes, but the challenge has now become how to make money on devices that are quickly becoming commodity products. As recently as the first quarter of the year, IT & Mobile accounted for 76% of the company’s operating profit; components contributed the remaining 22%.

Outside of Apple, many are struggling to do this.” Samsung announced its lowest quarterly profit in more than three years due to poor performance from its smartphone division despite being the world’s largest smartphone manufacturer. Things have gone topsy-turvy since then: In this quarter, mobile has shrunk to just 43% of the overall operating profit, while the components business that makes semiconductors and display panels accounts for 57%. Samsung Mobile is the company’s biggest business, but it has seen stiff competition from Apple, LG, HTC and Sony at the high end and Chinese manufacturers at the low end. India recently warned its military not to use the Chinese smartphones over fears of data snooping, which prompted Xiaomi to state that it never collects user data without permission and to set up an Indian data centre.

Samsung Galaxy A7 will feature a 5.2-inch display with resolution of 1920 x 1080p and pack a 64-bit eight-core Snapdragon 615 processor under the hood. Samsung’s attempts to take back the smartphone business will require a delicate balancing act: directly meeting its low-cost rivals without jeopardizing sales of its premium smartphones. Apple’s chief designer Jony Ive recently hit out at Xiaomi’s alleged copying dismissing suggestions of flattery saying “I think it is really straightforward. Kim, of Samsung’s smartphone division, said on Thursday’s earnings call that while maintaining high margins won’t be easy, he hopes to differentiate high-end Samsung devices by expanding the use of metal casing and flexible displays. On low-end models, he said that while improving product specifications would help, Samsung would focus on differentiating points such as design and user interface to set itself apart from its competitors.

Xiaomi has announced plans to expand this year to more than a dozen fast growing markets, including Malaysia, Indonesia, India Thailand, Russia, Turkey, Brazil and Mexico. Streamlining the manufacturing process and using Samsung’s massive scale will also play a role, he said. “The key is efficiency, to increase the number of components shared across mid- to low-end models, so that we can further leverage economies of scale,” Mr. Meanwhile, the company has high hopes for its logic chip business, which has suffered from Apple Inc.’s shift away from Samsung and toward chips made by competitors such as Taiwan Semiconductor Manufacturing Co. Despite the clamor for more dividends and shareholder returns from Samsung — first from investors and more recently from government officials — Samsung isn’t showing any signs that it’s any closer to opening the spigots. True, Samsung’s cash on hand has swelled to a record high of 67 trillion Korean won ($64 billion), but with a big semiconductor investment in the pipeline and the company moving into crisis mode, there’s plenty of reasons for Samsung to cling to its cash.

The topic garnered only scant mention from investor relations head Robert Yi, who said on the conference call that the company was pushing back any decision on dividends to the fourth quarter. “The IT industry is facing new paradigm shifts,” Mr. Management will take all these factors, including shareholder needs, to determine 2014 shareholder returns.” More from WSJ.D: And make sure to visit WSJ.D for all of our news, personal tech coverage, analysis and more, and add our XML feed to your favorite reader.

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