Samsung's weakness is further validation of Apple's model

On Tuesday of this week Samsung shocked much of Wall Street. The South Korean mobile giant said it would bring in a profit of $3.8 billion for the quarter compared to analyst expectations of about $5.2 billion. This also represents a year over year decline of about 60%, so it's a huge downward swin

For quite some time, Samsung has been the dominant name in Android land. In North America and Europe, where there is a larger appetite for high end phones, Samsung made a ton of money because they priced products similar to Apple's iPhone. Presumably they pulled in similarly thick profit margins on their hardware.

Samsung also has the advantage of controlling much of its supply chain, unlike smaller Android phone makers like HTC or Motorola, and scores of lesser known Indian or Chinese suppliers. But with such a big shift away from feature phones and towards low end smartphones around the world, Android volumes are steadily rising and the supply chain is maturing. Perhaps Samsung's advantage is diminishing at the low end? And at the high end the iPhone 6 and iPhone 6 Plus has essentially closed any of the big gaps left that would cause a would-be iOS user to adopt Android instead. Screen size was a big factor here.

Because Samsung and other Android vendors don't have any particular differentiation to offer outside of hardware. which is arguably becoming more of a commodity, how can we expect any one vendor to generate significantly higher gross margins?

I don't think we can, and it's finally starting to hurt Samsung.

Just like Microsoft controlled the software (and much of the profit) on Windows PCs in the last few decades, Android now holds that position in mobile. Where Microsoft was once the "barely debugged stack of drivers" to manufacturers the world over, now there's Google, and the hardware vendors are again fighting for thin margins because they don't control the entire user experience like Apple does.

In fact, for Apple, things are very much like they were in the PC space. They're the #2 player by operating system volume, and they command huge margins because they control everything. Android's largest supporter, Samsung, is seeing a collapse while Apple is growing and posting awesome numbers.

I also think the big difference between the PC space and the mobile industry is the idea of digital app delivery done through a single store. Microsoft never was able to make much money from software that it didn't write itself. But Google has replaced Microsoft in the transition to mobile and they do profit, as does Apple, from all app sales.

Long story short: Google and Apple remain powerful because they control the operating systems, app stores and digital sales. Vendors who make hardware that is as good as Apple's are unlikely to ever make the same kind of profit. They simply don't control enough of the experience to command Apple-like margins.

Former sell side analyst, out-of-box thinker, consultant, entrepreneur. Interests: Wife & kids, tech, NLP, fitness, travel, investing, 4HWW.

72 Comments
  • So Apple is beating Samsung on the high end, and lower cost Chinese manifactures are beating them on the low end. At least they still have washing machines.
  • And pretty nice TVs
  • Too bad they've just stopped making Plasmas though, and I don't think they're making much money as the margins are continually dwindling.
  • The TV panels are nice. The Smart TV software is shite. :(
  • Unfortunately that's the case for all smart TVs. That isn't just Samsung. ಠ益ಠ
  • That's what happens when you don't have Apple to copy as a template.
  • Amazon Fire TV has pretty good UI and it is nowhere near stolen from iOS or Apple TV. Slap that in a TV and I would use it. So I am failing to see you point. Apple isn't the ONLY company that is capable of putting good UI/UX in devices.
  • Except for LG, with webOS
  • I have a beautiful 65" VIZIO TV. But the integrated Apps are just as crappy as Samsung Apps. I think it's pretty difficult to beat Apple TV. Sent from the iMore App
  • I have probably the same TV. It is an amazing TV for the price. but the UI is just sluggish and unappealing as hell.
  • Their tv division also have the same design philosophy as their mobile division, copy the competitor. Stole pioneer technology, pioneer sued samsung but it took too long even though pioneer won pioneer had to shut down their TV operation. Korean's companies just copy everything and the only different between Chinese and Korean is Korean copied and made good products, Chinese just copied and don't care about products.
  • Yes which is a shame the pioneer elite models are still some of the best. Even though they were made years ago. Sent from the iMore App
  • And a boats, buildings, dishwashers, insurance and a bunch of other crap. I think they'll survive. I don't think it helped that the last Galaxy was kinda lackluster and ugly in my opinion. I was very much considering switching to Android but that phone left only HTC as an option i was interested in.
  • That's why Samsung reassigned their head of mobile design recently. The HTC One M8 is where it's at for Android :)
  • Samsung is the Global Worldwide leader in handsets sold. They are and always will be the Android platform market share leader and that has been since 2011. Bottom line Samsung's revenue is four times the amount of any android manufacturer 7 out of 10 purchased android handsets are Galaxy products. As for Apple whatever sales they made of the iphone 6 was because iphone 4 and 4s users upgraded. Those sells weren't from the iphone 6 plus if they 2 million they were lucky. Everyone I know with the iphone 5 or 5s doesn't want either of the new iPhones nor are they interested in IOS 8. At the end of the day the Galaxy Note products make any silly iphone 6 plus comically obsolete. From my Galaxy Note 3 On T-Mobile via iMore App
  • Yeh. They lead because they copy. It is easier to copy than think. Learn about Korean and Chinese cultures and your eyes will be opened. I don't support copycat.
  • I agree Sent from the iMore App
  • Everyone copies! Everyone! Get over it! Apple is the king of "re-branding", and "re-imagining" and "re-inventing". Samsung has issues yes. They need to streamline their product line. And focus hard on software enhancement and they'll be fine. They still made lots of money. I can't see the future but maybe they can learn from this. I still partly see this article as "Apple Still demands low cost and sells for exorbitant prices". Good for them that bit keeps working out that way. But it does blow my mind a bit when I see the price of their products. Posted via the iMore App for Android
  • That I don't deny. However, Apple is somehow able to reimagine and refine those ideas to become more elegant and intuitive. Conversely, whatever Samsung touches just seems to become more ugly and bloated.
    It's like same strategy, different implementation, and that makes all the difference.
  • "Everyone I know with the iphone 5 or 5s doesn't want either of the new iPhones nor are they interested in IOS 8." Yeah, I doubt that.
  • That guy is a moron. Everyone he knows with a 5 or 5s doesn't want the 6 plus like how many people is that? 2? 3? I just upgraded from the 5 to 6 plus, two coworkers of mine upgraded from the 5 to 6 and 6 plus.
  • Everyone i know that has an iPhone 5 or 5s wants to upgrade to the 6 or 6 plus.
  • He is a Samsung lover. You should see the crap he posts over on AC. You would think they pay his bills the way he goes on. Sent from the iMore App
  • This. Richard's a running gag the way he rabbit's on over Samsung, even on AC.
  • So how many friends do you have 2 millions?
  • Yeah um sorry to burst your bubble but I have an iPhone 5, am due for an upgrade, and plan to purchase an iPhone 6 soon. I also have iOS8 and like it. I'm not sure what everyone is saying to you and why.
  • Poor Richard, can't even get a break at Android Central let alone here ;)
  • Wow!!! You troll the Apple sites too? C'mon son!!! Sent from the iMore App
  • I don't know anyone that's still using a 5 or 5s they all upgraded. Sent from the iMore App
  • 6 sales are as high as they were because they snatched users who were only on Android for the large screen. Why do you think they're breaking sales numbers and not just matching previous years sales? Also, Samsung sells a shit ton of phones because of the low end markets all around the world. Compare their Galaxy S and Note lines against the iPhone in NA and Europe to see high end comparisons.. Using anecdotes (well everyone I know blah blah blah...) doesn't validate your point. It discredits it.
  • For every 1 Galaxy Note sold this year (2014) Apple has sold 10 iPhones. According to BGR's Chris Smith, "Unofficial numbers revealed that Samsung may have sold 4.5 million Galaxy Note 4 units during its first month. Estimates suggested Apple may have sold over 20 million iPhone 6 units during the first two weeks (not including China) and over 20 million iPhone 6 units in China during preorders." And "According to an analyst, for every Galaxy Note 4 unit the company sells, Apple will sell 10 iPhones. Kim Young-chan from Shinhan Investment wrote in a report that Apple might ship as many as 80 million iPhone units in the October-December period, without separating out iPhone 6 and 6 Plus sales." Respectfully, I'm all good with folks who love their android. That OS and the hardware is fun and does great things for the folks who love their devices. But I hate people who lie about the numbers (mostly because the numbers favor my favorite device.) but Android is definitely king of the movie OS devices with so many handsets in operation. But seriously, the iPhone is king of any one maker's handset. Arguably the best in tablets, arguably the best in set top boxes, and likely the best in the store/ecosystem with iTunes. If you follow the numbers.
  • And ships and bulldozers.
  • For a site dedicated to all things Apple, I see quite a few articles about Samsung, Google and Android. Strange.
  • It's called Mobile Nations for a reason.. it's all related. hold on, I'll getcha a crayon to connect the dots! :D
  • Lol! >.< +1 Sent from the iMore App
  • You must celebrate the downfall of losers to truly enjoy winning. Samsung/Google/Android is HP/Microsoft2.0/WindowsMe
  • It's not celebrating when it's only being pointed out that a competitor's business is being affected by your company of choice.
  • Certain iMore contributors seem intimidated by Samsung.
  • I think Samsung should stop putting so much of its resources into lower spec phones and focus on the Galaxy S5 and Note series.
  • It doesn't help they mention Apple in.. every... single... commercial..... They really need to refocus marketing.. The political style bashing generally doesn't work well.. you just polarize people and push customers away.. The opposite effect to what they want. Mocking people with a specific brand seems petty really. Entice them, don't mock them..
  • I agree with the bashing commercials. But as for spec and device comparison, the Note and S series are the only two Samsung devices that can compete with Apple. I'm tired of seeing the Galaxy Alphas and Megas from Samsung, those phones have to give them loss I would imagine
  • Go into a store and play with a GS5 or Note. Their version of Android is so disjointed that it's sick they're charging high end prices for these phones. They're replicating Google' apps unnecessarily, and creating their own design language that conflicts with Google's. It's just very ugly. It's probably me but I appreciate good design more than most and I could never use Samsung' stuff. Not when it feels like they just sling shit against the wall to see what sticks.
  • they are playing to the fanboy, i hate apple, audience. Though i'm not sure that helps because i'm not sure most people are buying based on hate of one company or another.
  • Yeah but why do they need to do that if they already have those customers. The advertising doesn't make sense anymore. You're not gonna get new customers that way. If you make a great product advertise the fact that you make a great product.
  • I totally agree! But I think Samsung should stop making so many versions of the S line! S5, S5 Active. S5 mini, S5 Sport, S5 LTE A. I understand the S5 (of course), the active (for the mountain climbers!) and the mini (for a smaller experience) but how is the s5 sport any better than the Active?? And I know LTEA models have better specs and screens and stuff, but why not just go ahead and put it on It in the first place?? It's crazy! But I think Samsung knows this now and is improving ! Sent from the iMore App
  • Well as someone above said they are getting squeezed from both ends, high end phones like iphone and other android phones and on the low end by players like Huawei and other cheap phone makers. They may need to go at it from both angles.
  • While yes ownership of the complete vertical stack of all needed solution elements is important and no doubt plays a large role in the success of Apple, I'd argue that EXECUTION is actually more critical. Why is that? Well there is another player in this same space who has a similar model as Apple, was hugely successful in leveraging that model, and really ran their own show for quite a few years and was #1, just dominant in their time. Who is that/was that? You know them all too well, Chris - RIM. So execution on top of the model is the most important aspect, as I see it. Not to diminish the huge advantage that owning your own vertical stack gives you, but you have to know what to do with it.
  • ...this is an article? Posted via the iMore App for Android
  • You're....here??? Sent from the iMore App
  • I feel samsung needs to focus more on software and less on throwing out a gazillion models a year. Keep the note line and their galaxy s line, but cut off some of the other devices. I know they sell lots of low end devices, but making 3+ with a slight variation of the low end can't be a big money maker for them.
  • Actually, it's saturation of market.... Has nothing to do with "Samsung sucks"... Only an idiot or sheep buys a phone every year now since the new stuff isn't a drastic departure from the last model unless you're talking about Apple, which just introduced the 2012 Android fleet...albeit with more onboard storage... And for that,we thank you... Tosh Posted via the Android iMore App!
  • Nice attempt to ignore Apple's massive 64-bit advantage.
    Designing their own chips is where Apple will leave competitors in the dust.
    Samsung is already more than 1 year behind, 64-bit wise.
    And it will only get worse for old Sammy.
    Especially since Android is such a mash-up of technologies.
    Good luck with that 64-bit fragment, Google.
  • I think Samsung design chips too. Whether they are behind i don't know as it's not something i pay attention too. But also, the chip has never factored into my phone purchase and i think i'm a pretty average buyer. I don't think it's a big deal if they are.
  • Tell me one app that uses those processor???? None... They are all designed for 32! Posted via the iMore App for Android
  • "Samsung's weakness is further validation of Apple's model" I'd say it's an even bigger indictment of Samsung's business model.
    Just barging in, throwing money into marketing, shipping "good enough" products.
    You'll eat the low-hanging fruit (LG, HTC, etc.)
    But you'll never reach the top of the tree.
  • The Note series aren't just "good enough"
  • Not good enough for me. Been spoiled by iPhone / iPad. But anyway, you evidently agree with the "barging in" and "throwing money into marketing".
  • I actually have an iPad and just returned an iPhone 6 today (to get the 6 Plus, wanted the bigger screen).. But coming from a Note 3, I can say that the Note devices are Samsungs top notch phone and I would have to say it's on an even playing field with the two new iPhones. So what I suggested Samsung to do was to stop making 20 lower spec devices and just focus on the S and Note series.
  • Samsung is not hurt because they lack App Store control, but because of a different type of power: electricity. Despite its relative elegance, the Mac lost to Windows not just because of price, but because of performance. The myriad hardware vendors working on Wintel advanced the state of the art at a pace the closed Mac could not match. That it was cheaper helped, sure, but for many purposes, it just flat-out performed better, too. Apple's tight-fisted control caused it to fall behind in performance. But in mobile, raw performance is not the relevant metric. Performance *per watt* is. The desktop path to victory of many makers attempting many things cannot survive, because each maker's innovation has to pass muster with a jealous battery. This is where Apple's model works. They can pivot, and make optimizations that Samsung simply cannot. Wintel makers could, and did, bury the Mac under an avalanche of hardware advances. Samsung cannot similarly counter in mobile with a hardware onslaught for the aforementioned battery reasons, as well as weight and style -- all concerns that mattered not at all on the desktop, but which move the market in mobile. And, of course, including more hardware has the side effect of lowering margins, as well.
  • Yes. Hardware advances like 1366x768 15" displays on $400 notebooks. Oh oh oh. Maybe super futuristic ideas like Ultrabooks. They're totally not MacBook Air ripoffs, y'all! No. I know what you mean! Truly innovative ideas like halfway functional gimmicks (biometric readers) hardware that requires bloatware to operate (LightScribe) and VGA ports that don't allow screen spanning. And my favorite: THOSE SWEET STICKERS THEY SLAP ALL OVER THE THINGS. Those are the best. They should start getting advertising deals and put like 50 stickers on your new box. Make that bastard look like NASCAR.
  • I could point out the years of competition between CPU vendors that resulted in Apple abandoning its own more promising architecture, but you might not be old enough to remember. I could point out even today, a PC gamer can choose from an array of graphics cards to give their 3 year old PC better video performance than a brand new Mac. Or I could just agree with you about the Mac's advances - I have 4 in my house, after all - and point out this article is about business, not technical, victories, and that all the (admittedly great) advances you mention have managed to move the Mac from 3% to 9% of the market. But you seem determined to take offense at anything not sufficiently praising. In which case all I can do is apologize for my comment saying Apple has a great strategy for the mobile age. Sent from the iMore App
  • Oh this is great, the site and writers that constantly complained about the Apple is doomed press has of course now done the same thing to Samsung. Yes they do need to make adjustments to their product line-up on the low end and have already started to give more attention to the design and materials at the high end. Low cost HI spec devices out of China, phones like the One+ are the culprit far more so than the IPhone 6 or 6+. Samsung sold 85 million devices in the first quarter so this idea that Samsung isn't selling phones is nuts. They need to make some adjustments and get back on track, you don't get to be the number one phone manufacturer without knowing what you're doing. Posted via the iMore App for Android
  • No, they knew exactly what they were doing. We can all agree on that. Samsung was fully awake and cognizant of their course of action... ... Throwing 98 septillion dollars at marketing a product into a leadership position.
  • Unfortunately Samsung create what is a great phone then they confuse the market by making several variants that all have slightly lower Specs and design and then when people see these variants they don't know which is the new phone and which is really not that model that Wowed the tech world at the launch. They do this each time. The release cycle is horrendous. They should focus a clean limited range of devices with good specs. Do the same in the different markets to target those markets instead of launching multiple versions of the S5. It has to be a good five or six models plus others that just add to the confusion. Not only that they don't have the same specifications, some are lower powered devices others are missing features or have smaller screens or older version of Android. Just do a small clean release series each year. Then use the same design to launch a Windows Model and any other OS they choose and then use a simple easy to understand model identifier. Samsung are their own worst enemy!
  • I knew the spec war would eventually catch up. There's only so much you can do to differentiate from the other droid makers. Sent from the iMore App
  • That's what I was thinking. The plethora of Android phones must certainly have people shopping for price first. Over there you've got Apple with 2 new models, and they're pretty expensive. Over here I've got a dozen or so Android phones with a pretty varied price range. I bet the majority of shoppers have no idea about specs. They just know they want a smart phone.
  • Well, BlackBerry too control their hardware and software. Look where it landed them.
  • And Microsoft with Windows Phone. They can't gain much traction. It remains a two horse race.
  • Is it just me or does anyone else find it really annoying that a billion dollar company that makes billions ever quarter is said to be on the downturn? Meanwhile people cannot find a job and when they do their salary cannot meet the needs of daily living and we are supposed to read headlines like a company like this is on the down swing??? Where has sensibility gone??
  • To china i guess.. Sad Posted via the iMore App for Android
  • In the article you compare Andriod to MS Windows. The analogy works in a software and hardware vendor analysis. But, correct me if I'm wrong, but isn't Andriod more like Lynix? Couldn't each Harware vendor create a fresh OS from it, like Amazon did? Maybe Samsung's problem is treating Andriod like HP or Dell treated Windows, something they have no control over. It's obvious at this point it's not hardware or software, it's a marriage of both. Maybe Samsung should think of Andriod in that light.
  • Switched to Android 6 months ago, bought a Galaxy S4, nice phone at first, snappy enough, I like the relatively open environment even though you can clearly see that they dont have a say in most of the features (implementation isnt the smoothest, user experience is weird at times). Main problem was the sh*t build quality. The LCD panel broke after 5 months when I sat on my couch with the phone in my back pocket. Now, I am relatively big (been powerlifting for years now) but the funny thing (further testimony to the poor quality) is that the gorilla glass screen is just fine. The LCD panel under is shattered because the phone broke from the plastic back (it's all bent) all the way through the LCD panel and stopped at the screen which was resistant enough. I cant remember how many times I sat in the same situation with my iPhone 4s and nothing ever happened. So I went back to iOS with a 5S. It's like I never really left. Overall, the poor build, the absence of control over the OS and over the marketplace (that entails fewer services as well) and the lack of integration between software and hardware are a handicap on the long term. It's not like I'm an iOS fanatic, I was an early BADA client (through the Samsung Wave) and believed in it for a while, alas Samsung lied to many of us and never kicked it off the ground. I dont see how they could change that path in the foreseeable future.