Samsung Electronics has reportedly decided to diversify its smartphone model line-up per different regional markets in the second half of the year so as to supplement the lackluster sales of their Galaxy S4 in the first half. However the market is now concerned that such strategy may erode the core capacity of Samsung Electronics, their production competitiveness.
The report states that Samsung had optimized its production system so that it could pursue a 'mega model' strategy and for doing that, the company had shifted its strategy too radically causing a mismatch between sales and production. Samsung originally forecast 28 million Galaxy S4s would be sold during Q2 and they've had to lower the targets by 20% while added yet more phone models to ramp up volume.
The problem with this thinking is that by increasing the number of phone models, the harder it becomes to standardize the parts and to automate the production lines. The report further states that Samsung's efforts made so far to automate its production lines may actually bring greater loss to their bottom line rather than achieving better scale of economy.
The effect of lowered productivity is expected to impact the profitability of not only Samsung, but also its vendors. When the vendors are asked to produce many different parts, their productivity also drops dragging down their profits, and knowing that the vendors are suffering, Samsung Electronics can't pressure the vendors to lower their prices as much as they'd like.
In other words, Samsung's flagship products aren't flying off the shelf like their hype machine lead so many on Wall Street to believe. To mask their shortcomings they'll setting out to flood the market with cheap products to gain empty market share with little profit.
Just when Samsung should be showing the world that they're the true innovative champs in the smartphone space, they're dangling in the wind like a clueless chime. Their strategy that has worked so well for them with mass produced fridges and stoves doesn't appear to be working for them with smartphones thus far. Is Samsung's mega model coming unglued? Only time will tell.