Samsung, HTC Pinched By Slowing High-End Smartphone Market
Samsung and HTC both are feeling the impact of a high-end smartphone market that analysts say is hitting the saturation point and beginning to slow.
Samsung officials on July 5 announced that the company's financial numbers for the second quarter will be lower than had previously been expected, coming in between $8.2 billion and $8.5 billion. Samsung reportedly is feeling the impact of slower-than-expected sales of its Galaxy S4 smartphone, which launched in March to much fanfare.
HTC, which has seen its market share plummet over the past year as it has struggled to compete with the likes of Samsung and Apple, on July 5 announced a quarterly profit of $42 million, down 83 percent from the same period last year and significantly less than what financial analysts had been forecasting. This comes after HTC officials announced the One smartphone in February—and released it in the United States in April—in hopes of gaining traction against Samsung's Galaxy devices and Apple's iPhones as well as a growing crop of Chinese OEMs, such as Huawei and ZTE.
According to IDC, Huawei and ZTE in the first quarter ranked fourth and fifth; HTC placed ninth. Both the Samsung Galaxy S 4 and HTC's One run Google's Android mobile operating system.
The financial announcements from Samsung and HTC add credence to the growing belief that the high-end smartphone market is maturing and sales are beginning to slow. At the same time, growing smartphone demand in emerging markets is helping to drive down the average selling prices of devices, which cuts into the device markers' margins.
"The higher-end portion of the smartphone market has hit a wall due to high penetration rates and high price points," Brian White, analyst with Topeka Capital Markets, told Forbes.
In a June 4 report, IDC analysts said that as demand spreads to emerging markets, average selling prices for smartphones will decline from $407 in 2012 to as low as $309 by 2017.
"At a time when the global smartphone market is growing at 33 percent year over year, average selling prices have plummeted, dropping 8 percent in 2012 with another 9 percent expected this year," Ryan Reith, program manager for IDC's Mobility Trackers, said in a statement. "Smartphones have become increasingly common in emerging markets and it is often the first affordable means of computing for these markets. These are markets where average personal income is far less than in developed markets, and therefore vendors have been forced to create smartphone computing experiences for the low end of the market."
At the same time, the analyst firm expects this year's smartphone shipments to grow 32.7 percent from 2012. Emerging markets will account for 64.8 percent of all smartphones shipped.
Samsung officials are expecting to grow its profits over the same period last year. The $8.3 billion would represent a 47 percent increase. And while its mobile business reportedly accounts for as much as 70 percent of its overall profit, Samsung also has other businesses, from memory chips to consumer devices to semiconductors.
According to IDC, in the first quarter, Samsung was the world's top smartphone vendor, shipping 70.7 million units and holding 32.7 percent of the market. Apple was second, with 37.4 million units shipped and 17.3 percent of the market. LG Electronics was third.
Vendors like Samsung and Apple are expected to combat the slowing sales in the high-end market with smaller versions of their smartphones that come with lower price points. Samsung in May introduced the Galaxy S 4 Mini. "We want to give people more choices with [the] Galaxy S 4 Mini," JK Shin, CEO and president of IT and mobile communication at Samsung, said at the time of the announcement.
Analysts also expect Apple to introduce a smaller and less expensive iPhone, following on its decision last year to release the iPad Mini. That speculation has been around for months.