The world's top volume smartphone maker Samsung who had their profits plunge by 60% last quarter has to quickly regroup and find a new strategy to take on China's Xiaomi Corp. that has wickedly rocked the Chinese market and more importantly rocked Samsung out of the spotlight. Samsung is now stepping up its mid- to low-end lineups in an attempt to stop their eroding profits. Yet with Xiaomi aggressively selling into the low and mid range market and Apple from the mid range to the high-end of the Chinese market, Samsung is experiencing the big squeeze with little room for profit.
The tech bellwether unveiled two mid-tier smartphones Galaxy A and A5 on Oct. 31 for a November launch in China, and other emerging countries to follow suit. The Galaxy A series touts a metallic exterior and comes in several different colors including pink and gold, which Samsung said were made to woo the younger generation in the world's most populous market.
The release of the new Galaxy A models indicate Samsung is leaning toward cheaper phones to retain its market clout in this saturating business one analysts said.
Last month Robert Yi, the head of Samsung Electronics' investor's relations, stated in their latest conference call that Samsung failed to "act swiftly to the fast-changing market." The latest data by Strategy Analytics showed that Samsung has been losing its ground to smaller Chinese rivals. Its market share today in China is 24.7 percent as of the end of September which is down from 35 percent a year earlier.
The robust growth of Xiaomi Inc., a Beijing-based company that mainly sells mid to low-end handsets, has put increasing pressure on Samsung who had been more focused on their battle with Apple.
Market analysts remain in doubt whether Samsung's lower pricing strategy will bring the top smartphone maker tangible improvement in future earnings. To make matter worse, it's being reported today by Bloomberg that Xiaomi Corp. is in talks for a funding round that values the smartphone maker at about $40 billion to $50 billion which is bigger than Lenovo and others.
Bloomberg TV talks about Xiaomi's possible new round of funding with Bloomberg reporter Ed Lococo.
The big squeeze on Samsung is on in China with Apple appealing to the high-end of the Chinese market and Xiaomi taking up the low-end and beginning to push more aggressively into the mid-level smartphone segment. Xiaomi wants to also challenge Samsung in other key future markets like India. That's why Samsung raced to manufacture this new line of smartphones.
According to a new report published by the Wall Street Journal, "Samsung engineers began working on the Galaxy A series of smartphones in the early summer, according to a person familiar with the matter, when it became clear that the company's slide in emerging markets like China was accelerating."
With Samsung being forced to battle Xiaomi and others in China at an accelerated pace and finding out that Apple's first crack at a phablet is already crushing their Note 4 sales, Samsung is likely to experience a painful spiralling downturn with little chance of seeing profitability for many quarters to come.