The use of smartphones has been rapidly and steadily increasing over the past few years. Today smartphones can be considered ubiquitous and everyone, from your work colleagues to your mother seems to be owning one.
You might think that given the prolific trend, the world’s biggest smartphones manufacturer like Samsung and LG are making profits like there’s no tomorrow, but the matter is a bit more delicate than that. Let me elaborate on that.
This week, three key Android OEM players in the smartphones market have posted their financial results for the third quarter of 2016, and the news isn’t good.
To be fair, in Samsung’s case, we were expecting it. Following the Galaxy Note7 demise, the Korean tech giant reported an operating loss of approximately $87.8 million, which amounts to a whopping 96% decrease compared to the same period last year. It’s the lowest the South Korean company has seen in the last eight years.
While the mobile division is dragging Samsung down, other subsidies are doing just fine and are quite profitable. All in all, the company announced an overall operating profit of approximately $4.5 billion.
The overall consensus is that Samsung will bounce back from the Galaxy Note7 disaster and the company is currently hard at work, concentrating its forces on its Messiah product, the Galaxy S8. The smartphone will hopefully wipe the slate clean for Samsung and restore its mobile division to its former glory. Or maybe not.
The same story repeats itself at LG. Despite making tons of cash thanks to its home appliances, air conditioners and TV sales, which amounts for a record $340.4 million profit, LG’s mobile division is slumping.
In Q3 LG’s mobile division posted a loss of $389.4 million, with products like the LG G5 and LV20 not doing much of anything to help the company bounce back. Perhaps it would be time for LG to take a step back and find a way to consider its mobile strategy from a new perspective?
HTC posted its financial results too, which revealed a $57 million loss. There’s not much surprise there, though. Gone are the days of the HTC Evo 4G and the company’s new products aren’t really keeping up with the competition.
HTC has been on a downward trend for years and the arrival of the HTC 10 hasn’t done much to reverse the situation, although the company claims the smartphone “has been embraced by the market”. Apparently not enough.
Now what all these three stories have in common is that three major players in the Android smartphone markers are leaking a lot of money through their mobile division. So, what’s happening?
The uproar of Chinese manufacturers that are offering super affordable smartphones with awesome specifications (just look at the new Xiaomi Mi Note 2) might be part of the explanation. Also, people are less than willing to update their smartphone on a yearly basis, especially if said smartphone sells for around $800.
An overall slowdown in the smartphone market has also been noticed. Since everyone owns a smartphone today, new adopters are slowly becoming a dying breed.
In a saturated market, brands need to go beyond hardware in order to succeed. Over the last few years, smartphones have started to look the same, with technology innovation measured in steps rather than in leaps.
This is why when Samsung launches a new premium phone now, mostly die-hard fans are around to mark the occasion. Relatively small, incremental updates aren’t enough to make the masses really want to get their hands on this particular phones, anymore.
Customers are starting to see that real innovation might not come from the tech titans, but from smaller brands like OnePlus, ZTE or Xiaomi which have unique things to offer, at affordable prices. Smartphone giants would do well to treat this threat seriously.
Sure, there could be a market slowdown, but in the case of LG, it is a lot of things. First off, you say the G5 and V20 haven’t helped. The V20 is officially launched in US starting tomorrow. So V20 has no impact on Q3 results and shouldn’t be in the conversation. Just say the G5 tanked.
LG does not know how to market their device. They spend money in the wrong places. They have mixed messages before launches and poor execution. Their hardware could be good, but it is never complete. Same with software. Now, hardware and software don’t have to be complete, because marketing can pick up the slack. Most customers don’t know what they’re missing anyway. Clearly LG doesn’t know how to market and they definitely do not understand the retail channel and all of its specifics. It’s a simple problem, but a longer conversation than a comment post.
They could get things right, but I do not think they will after the repeated patterns I’ve seen the last 2 years. They have the resources, they have the ability, but it’s understanding and execution they lack. I wonder out loud, do they even know why they are missing in the U.S. ?
I also wonder about the health of their relationship in the carriers. I hope it has not suffered due to any past device issues. LG would do themselves a favor if they made quality control a top brand priority and I hope they have quickly and directly addressed product issues with carriers and taken responsibility. If not, that could effect carrier relationships and ultimately brand.
Yes Chinese players matter. Yes over time they take a percentage or two or five of Marketshare. But LG is doing this to itself.
The question is how bad do they want to fix it? If they don’t fix it, they are going to miss out on other revenue streams that will come from mobile besides smartphone hardware.
There’s many reasons Android is losing money. But the main thing it boils down to is Android phone makers make their money on their flagship phones. And to most people buying a flagship Android phone over an iPhone is like paying Oakley prices for a pair of Walmart brand sunglasses. It just doesn’t make sense. Especially when you include the fact that while Android phones have better specs, it doesn’t mean it leads to better performance. Matter of fact the iPhone 7 beats all Android smartphones in both performance and browser benchmarks. Another thing is iOS gets far less malware than Android. How many people are really willing to pay the same for more malware? You also have Android being easier to hack and privacy concerns, these aren’t issues of iOS. Another huge factor is fragmentation. If and when an Android phone gets an update is a crapshoot, it may or may not ever come. Less than 25% of all Android users will ever be on the newest version of Android , while on the flip side over 80% of iOS users are always end up on the newest version of iOS. Best apps/games are either iOS exclusive or come to iOS first as well. Overall Android is best suited for those who can’t afford an iPhone or when you can geta flagship Android phone on sale. In closing Android is for those who want a cheap alternative to the iPhone. And Android companies can’t profit that way. What I think ends up happening long term is Android phones end up not only having lock screen ads you have to pay to remove (similar to the Kindle Fire) but phone makers will get more creative like popup notifications you can’t turn off that mention new products from that company from. And there will prolly be more and more third party pre-installed apps as another way for Android companies to recoup some money.
You made some good points, but saying that android is best suited to those who cant afford an iPhone is a bit delusional. Flagship android devices can be just as expensive as iPhones, yet having more specs and features may make it seem better value to the buyer. Buying an iPhone is simply buying a brand nowadays.