Low Cost Is The New Smartphone Mantra
South Korean consumer devices manufacturer Samsung 's share price slumped to a nine-month low at the end of June amid concerns over slowing sales of its flagship Galaxy S4 smartphone . Declining average selling p rice (ASP) of smart phones globally led us to believe that a seismic shift towards lower price portfolio could be underway. That said, BMI predicts that Samsung's competitive positioning should provide some support to its bottom line and equity performance.
|Samsung Must Follow The Market To Remain Market Leader|
|Smartphone Average Selling Price (ASP) (US$)|
Falling ASP dimmed S4 Outlook
Data suggest that consumers are holding off buying expensive handsets that are "evolutionary" rather than "revolutionary" in nature. In other words, incremental innovation no longer commands such a high premium. The average selling price of smart phones has declined globally from US$443 in 2011 to US$372 in 2013. For Asia's consumer devices giant Samsung, weaker demand for its much-hyped Galaxy S4 has led several sell-side analysts to cut July monthly order forecasts for the S4 by 20-30% from 10mn to 7-8mn. BMI believes the focus for the mobile industry is moving towards low-price smart phones, which means that the S4 is unlikely to see a reversal trend in its volume sales slide in the near term.
Samsung Faces Bigger Threat From Low-Cost Chinese Producers
To offset a sales slowdown in the high-end market, Samsung introduced a lower-priced S4 mini in May to compete against the lower-end Chinese competitors. BMI expects Samsung to face tougher competition from cheaper manufacturers like Huawei, Lenovo and ZTE as the company refocuses its effort on the low to mid-end range market ( see 'Lenovo seeks Leadership Position', May 23). In the short term, this will exert downward pressure on ASP and margins for Samsung. In the longer term, however, we see the push towards lower-price models as the key to unlocking the growth potential of smart phone sales in the emerging markets - where there is latent demand for smartphones - given their lower GDP per capita.
Samsung's Wide Portfolio Reduce Impact Of Falling ASP
Despite a less than favourable showing in the high-end segment, BMI believes Samsung's full portfolio offering would allow it to parry back some of the losses with mid-range products such as the S4 mini. Already, there is sign of consolidation in Samsung's share price after bearish run in the past one month. Having a wide portfolio would help to cushion some of the impact as the industry transits into a lower cost model.