Why Samsung’s Mobile Business Is Completely Tanking, In One Simple Picture

The latest numbers from Samsung’s mobile business are in… and they’re not looking good at all.

The Wall Street Journal reported some of these worrying numbers:

  1. The Samsung Galaxy S5 sales (their flagship device) went down 25% year-over-year during the first three months of sales when compared to its predecessors, the Galaxy S4.
  2. Sales are even weaker in China (a huge and important market for all manufacturers), where the Galaxy S5 is down by 50%. 
  3. Carriers had estimated that demand for the Galaxy S5 would grow by 20%… when in reality, it went down by 20%.
  4. Samsung overestimated the Galaxy S5’s demand by 40%.

As a result, Samsung is now looking to replace its current co-CEO and mobile division chief J.K. Shin with its home-appliance and television divisions head and co-CEO B.K. Yoon.

Shareholders of Samsung should be sounding the alarm bells by now… for one key reason: Samsung gets more of its profits from the mobile division than any other.

Samsung now relies on its mobile division too much for it to fail. | Source: Business Insider
Samsung now relies on its mobile division too much for it to fail. | Source: Business Insider

So how did Samsung miss the mark so badly?

To industry insiders, the answer couldn’t have been any simpler: they were too lucky, for too long. Because of they were so profitable in the high-end (by copying Apple) and in the low-end (by continuously pumping out devices, hoping that one will stick with the consumers), they got complacent.

Samsung’s problems can be explained in one image:

Screen Shot 2014-11-24 at 8.14.52 pm
Click to zoom in!

To recap why Samsung is bombing their most profitable business…

  1. Samsung got squeezed out of the market. Apple, HTC, Motorola and other companies took over the high-end market and pushed Samsung out of it; those who only owned a Samsung phone for its large screen now have the choice of Apple’s iPhone 6 Plus. Innovative companies based in Asia like Huawei and Xiaomi pushed Samsung out of the low-end market by offering greater devices at lower prices, without invoking the feeling within consumers that they’re buying a subpar Apple-like device.
  2. Samsung is too easy to emulate, and there’s nothing special about the company. Its high-end phones look too much like Apple’s or other competitors’, and its low-end phones can be easily replicated, especially in China.
  3. Samsung had it too easy for too long, and is now lost when forced to innovate.