Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99per week for the first 24weeks
Just $1.99per week for the first 24weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

A man using his mobile phone walks past a Samsung Electronics shop in the company's main office building in central Seoul July 23, 2013.

LEE JAE-WON/Reuters

After emerging as the leading smartphone maker, Samsung Electronics Co. is now being hit hard by fast-moving changes in the global cellphone market.

The South Korea-based consumer electronics giant became the global flag bearer for Google Inc.'s Android operating system with its premium Galaxy smartphones and a mix of cheaper devices, bruising Apple Inc.'s market lead and overturning industry stalwarts such as Nokia Oyj and BlackBerry Ltd.

But newer competitors in China, such as Xiaomi Inc. and Lenovo Group Ltd., are cramming high-end functionality into cheaper devices that also run Android. And these devices are now selling fast in the developing world even as the market for high-end smartphones is reaching a saturation point in the West – putting pressure on Samsung, the market leader, which has seen profit pinched and its share price sink.

Story continues below advertisement

On Tuesday, Samsung warned that it expected second-quarter profit to drop between 22.3 per cent and 26.5 per cent, which would be the third straight quarterly drop. The company forecast that profit would drop to $7.1-billion (U.S.) for the three months ended June. Analysts had expected roughly $8-billion.

"Samsung has depended on smartphones to act as the profit engine for the company, but the phones don't have the same luster," says Kevin Restivo, a European mobility analyst with research firm IDC in London. "There's no question the market has entered a different phase, has evolved – and part of that evolution is falling prices."

Over the past several years, Samsung's mobile phone unit has come to account for more than 75 per cent of the company's total profit. Western consumers kept upgrading to newer versions of its enormously popular Galaxy phones, while its cheaper devices – which were available in a number of price points – sold well in various African and Asian countries.

But now, that lucrative market for mid-tier devices has collapsed, says Chetan Sharma, a U.S. technology consultant who has worked with Samsung, China Mobile and AT&T. Consumers, particularly in emerging markets, are choosing either low-end or high-end devices, and no longer want to spend $400 on a device that is far more expensive than cheaper devices with similar features, but doesn't have as much cachet as an Apple iPhone, he says.

"Samsung has benefited tremendously from their brand in emerging markets, but competitors are coming up with products that look similar," Mr. Sharma says. "And so a consumer that wants to own a $100 phone that looks like a galaxy and walks like a Galaxy – there's a number of those coming into the market."

And although Mr. Sharma says Samsung would not be surprised by what's happening, he says profit margins are a natural victim of the trends that are now sweeping through the market. "Samsung can probably push a bunch of low-end devices, but their margins will get crushed," Mr. Sharma adds.

Xiaomi, a Chinese manufacturer, has become a particularly fierce challenger to Samsung in the crucial Chinese market, producing sleek, touchscreen phones that run Android – but retail for a fraction of the cost of a Samsung, and sometimes have better battery life. The Beijing-based company is also expanding. In mid-July, it will launch the Mi3, a phone that is almost identical to Samsung's Galaxy S4, but will sell for roughly half the price – about $250. But across China, phones from companies such as ZTE Corp. sell for much less than that, around $100 or less.

Story continues below advertisement

But even in lucrative markets for high-end phones, such as the United States, analysts say the explosive smartphone growth of a couple of years has dissipated.

"It's a very mature market at this point," says Charles Golvin, with Abelian Research. "That same growth just isn't there. And most of the high volume sales are coming from the places where Xiaomi are competing – or even at the lower end: companies like ZTE and less known Chinese brands."

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies