BANGALORE, India -- Samsung Electronics Co. Ltd.'s plan to lay off staff in India could be the first of many cost-cutting moves worldwide as the Korean conglomerate moves to excel in the "very-low-margin, ultra-competitive" business of Android smartphones.
Samsung faces heavy competition, most notably from the Android One initiative that Google launched in India last year to bring $30 Android smartphones to the subcontinent. Despite steadily losing market share and seeing its margins shrink, Samsung's smartphone business is one Android handset vendor that's consistently making money, and, while it will continue to lose overall market share, the company has the best chance of remaining in the lead of a consolidated Android pack over the next three to four years, analysts told International Business Times.
Samsung could be laying off as many as 1,000 people in India across its businesses, Economic Times, the country's biggest financial daily, reported on Thursday, citing five people with knowledge of the matter whom the newspaper didn't name.
"I won't be surprised if it happens in some of the other countries as well," Kiranjeet Kaur, a research manager at market research firm IDC, said by phone from Singapore. "It's not just the phone division which is affected. They are rationalizing their broader portfolio."
The company has been "going through some restructuring in China as well after its share declined from 20 percent to 10 percent," Kaur said.
"This is probably one of the first moves ... they have also relocated a lot of manufacturing to Vietnam to reduce costs," which was ongoing from last year, Daniel Gleeson, a senior analyst at consultancy IHS Inc., said on the phone from London. "I wouldn't be surprised if there were more moves than this, particularly if Samsung continues to struggle."
Samsung’s woes began when Chinese vendors such as Xiaomi and Lenovo started selling "powerfully packed phones at very competitive price points," IDC's Kaur said in an email to IBT. "And then Apple launched its larger screen phones, taking away the edge that Samsung had over Apple for a long time."
That the response to Samsung's latest flagship Galaxy S6 wasn't ecstatic didn't help, and its cousin with the double-curved screen, S6 Edge, suffered from Samsung's inability to manufacture enough of the displays, while the Edge received a lot of interest.
After reaching a market share of close to 20 percent in 2013 in China, it was toppled over by Lenovo in early 2014 and now Samsung’s share in China's smartphone market was less than 10 percent at the end of the first six months of 2015, IDC estimates.
Gleeson added that globally last year, Samsung's market share was just under 25 percent and IHS projects it will be just under 20 percent this year, dropping to about 15 percent by 2019, by which time Apple will continue to grow and surpass Samsung.
While cost cutting can go only so far, Samsung has the deep engineering strengths to come up with a game changer. While it is trying to rapidly ramp up the supply of the displays for the Edge, and has recently released the Edge Plus -- and there is the possibility that such displays will go on other Samsung phones -- "there are also strong rumors that Samsung is working on foldable displays," Gleeson said.
Samsung could debut the foldable display technology as early as next year, and certainly by 2017, he said. "Curved screens are a nice thing to look at, but foldable screens have the potential to radically change the user experience."
Samsung should also look well beyond the next iteration in the Galaxy line of smartphones to identify the next big thing in adjacent and new industry sectors, said Tarun Pathak, an analyst at Hong Kong-based Counterpoint Technology Market Research, in an email. Fields that are opening include the wider Internet-of-things opportunities, smart homes and smart cars, he said. Last year, Samsung purchased SmartThings and, this September, announced its expansion in the smart home area.
In general, Samsung has very strong hardware engineering capabilities and technologies, particularly with displays and memory and "it is improving on chipsets," as the performance of its own Exynos processors on the Galaxy S6 have proven. Apple, on the other hand, has "massive, massive strength in software," Gleeson said.
However, more than Apple's success, it's companies such as Huawei and Xiaomi in China and Micromax Informatics in India eating into its market share that has hurt Samsung.
"As long as those guys can stay successful, it's going to hurt Samsung."
The scenario is shifting, and potentially, in Samsung's favor: There is very little growth now in China, and barring India, growth will likely slow down in some of the emerging markets as well, which means any growth for any vendor comes at the expense of other vendors.
"In a sense, for the Android handset makers, there is likely to be a period of a lot more consolidation, going into survival mode," Gleeson said.
He believes that Samsung is in a better position because they are making better margins versus Android competitors, and they have a huge industrial complex behind them to bring together cheaper chipsets, memory and components of their own. Some of that strength was reflected in Samsung's surprise fiscal third quarter results, although the bigger-than-expected profit was not due to increased smartphone sales but because of a weaker South Korean won against the dollar.
IDC's Kaur points to another strength that Samsung has in India, which could turn out to be the market that holds the key to the success of the Android phone vendors: Samsung's deeply entrenched and widely distributed physical network in the country. Companies such as Xiaomi rely almost entirely on online sales for their business model to work, but the online channel accounts for only about 20 percent to 25 percent of overall mobile phone retail sales in India but there is predicted growth of 40 percent through 2019.
Even if there is a five-percentage-point jump in a year, that still means at least 70 percent of mobile phone sales in the country will be via brick-and-mortar stores, which Samsung dominates. Samsung has also begun to respond to the lower-priced competition by launching a slew of budget phones priced in the range of $150 to $450, which has helped it gain some share back in the emerging markets, Kaur said.