Three Reasons Why Samsung's High Phone Sales Could Be Set For A Big Fall


Samsung's earnings, released this week, reveal cracks in the foundation of the industry's top mobile phone maker’s plan to stay on top.

According to the International Data Corporation (IDC), the South Korean conglomerate led all other brands with 85 million smartphone shipments in the first quarter, better than the next four top vendors combined. Despite this, Samsung saw a dip in smartphone market share this past quarter falling to 30.2 percent from 31.9 percent in the year prior.

The mobile share loss was Samsung's first since 2010. The South Korean tech giant's earnings for the quarter posted on Tuesday revealed a loss in profit of 3.3 percent compared to the year prior, which suggest it may be entering a period of decline. That decline could be triggered by a tectonic shift about to take place in the mobile space. Here are three reasons why Samsung could be ready to fall.

[Related: The Five Best-Selling Smartphone Brands Of The First Quarter ]

1. Samsung will soon face new Goliath-sized rivals that will challenge the company.

The high sale numbers have a lot to do with its entry-level and midlevel phones doing well in developing international markets, but those numbers are dropping with the growth of Chinese vendors Lenovo and Huawei.

"Lenovo is a very hungry company," said Douglas Grosfield, president and CEO of Xylotek Solutions, an Ontario-based solution provider. "They have roadblocks [that prevent rivals] from entering the smartphone market in North America, but their desire to push forward and to close the deal on Motorola is a huge way to get their foot in the door in the North American markets. That's certainly a threat to Samsung, Apple and BlackBerry.”

Lenovo is in the midst of acquiring Motorola for $2.91 billion, and once that purchase is final later this year, Samsung's low-end phone market will face some steeper competition.

2. Samsung is about to lose the large-screen edge over Apple, say experts.

What has been driving Samsung's high-end smartphone sales in the past is its large-screen smartphone sales, but with Apple rumored to release a large-screen iPhone 6 later this year, Samsung may be in for some stiff competition in that market as well.

"We're expecting very good numbers when they release the new iPhone, which I think will be a very good product," said Raul De Arriz, national government sales manager for Small Dog Electronics, Waitsfield, Vt., one of the top Apple specialists in the country. "I think that Apple will release a large-screen iPhone, and that will take some sales away from Samsung. We'll see it late in the third quarter, or early in the fourth quarter."

De Arriz predicts that when the top two mobile providers in the world are both offering large-screen phones, the software will separate the two.

"You will see a lot of migration because people will want to move away from Android," he said.

Samsung has announced it is releasing mobile devices in June that will run on Tizen instead of Android. It is not yet known whether Samsung will release products for both operating systems going forward.

3. Samsung's financial health is tied too closely to handsets.

The company saw three-fourths of its first-quarter profit come from its mobile business. Samsung is expecting the release of the Galaxy S5 earlier this month to drive its high-end smartphone sales in the second quarter, but wireless service provider Verizon is already holding a “buy-1-get-1” promotion on the phone, and some solution providers are scratching their heads.

"The [Galaxy S5] is probably not selling as well as expected," Said De Arriz. "The buy-1-get-1 free promotion from Verizon is an indicator of that. It came out a month ago, and you have that promotion? Samsung is doing well because of their low-end phone and international sales, not because of their high-end phones."

Samsung does not disclose smartphone sales numbers.

PUBLISHED MAY 2, 2014