Galaxy Note 4 won't turn around Samsung's ailing fortunes, analysts say

The company needs better high-end smartphones and a better portfolio of low-end devices

Samsung Electronics is expected to launch soon the Galaxy Note 4, in a bid to help improve its ailing fortunes in the high-end segment of the smartphone market. But the company's problems run deeper with local vendors eating its lunch with cheaper devices in countries like China and India.

On Wednesday, Samsung posted an invite to the "Unpacked 2014 Episode 2" event, which will take place simultaneously in Berlin, Beijing, and New York on Sept. 3. The company usually launches a new version of its Galaxy Note line at the IFA trade show in Berlin, and this year seems to be no different with the invite telling people to "note the date."

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The launch comes after a second quarter that was catastrophic for Samsung. The company may still be the largest smartphone vendor in the world, but its market share dropped from 32.6 percent to 25.2 percent. And while overall sales grew by almost 27 percent, Samsung's shipments dropped by 1.5 million units to 74.5 million smartphones, according to Strategy Analytics.

The Note family has become very important to Samsung, but something more is needed to give the company a real boost.

"I think Samsung is in a holding pattern at the moment. Any new device launch at this stage is really focused on stabilizing rather than regrowing its device business. For Samsung to revitalize its sales the company needs a revolutionary design, something like a foldable or bendable screen to shake up the market," said Neil Mawston, executive director at Strategy Analytics.

The Galaxy Note 4 is likely to be more of an evolution of the existing Note 3 model. Rumored specifications include a 5.7-inch screen with a 2,560-by-1,440-pixel resolution and Qualcomm's new Snapdragon 805 processor.

Even if the Galaxy Note 4 is an incremental update under the hood, Samsung has to show it has learned from the "Galaxy S5 debacle," according to Neil Shah, research director at Counterpoint Technology Market Research.

The Galaxy S5 has been seen by many as a disappointment, largely because it doesn't have a more luxurious design like the HTC One M8 to help set it apart from previous models and cheaper smartphones.

"I hope the Note 4 will have all those factors missing from the S5. For example, a premium design with a new design language that includes some metal instead of the plastic design of its existing products. If you look at the Note 2 and 3, and the Galaxy S4 and S5 from the front they all look the same," said Shah.

With Apple expected to launch new iPhones with bigger screens just a couple of days after the Unpacked event, Samsung must have something special in store to avoid further market share losses.

To turn around its fortunes, Samsung also has to woo consumers in countries such as China and India with an improved portfolio of low-cost smartphones. As sales in Western countries have stalled, emerging markets have taken over as growth engines.

For example, in India just 6 percent are expected to own a mobile phone in the first half of the year, according to Strategy Analytics. India also added 28 million mobile subscribers during the first quarter, the largest increase of any country in the world.

In both China and India, Samsung's smartphone sales are suffering at the hands of local companies.

"Consumers buying smartphones from local brands have been a trend from the last four or five years, and is snowballing at the moment," Mawston said.

In China, Xiaomi was either neck and neck with Samsung or on top during the second quarter depending upon whom you believe. In India, Micromax has already surpassed Samsung's overall phone sales and is catching up on smartphones.

The sheer number of products Samsung is offering has become confusing to consumers, and its low-end smartphones are also too expensive.

"The prices are almost 30 to 40 percent higher than what Chinese and Indian brands would charge for smartphones with similar specifications," Shah said.

There are several reasons for the progress companies like Xiaomi and Micromax have made. One is the growing availability of so-called reference platforms or designs. Even Google is getting involved with Android One, a program designed to help vendors build high-quality smartphones priced under $100. The first products will come from Micromax and other Indian smartphone manufacturers such as Karbonn Mobiles and Spice this fall.

What the reference platforms have done is lower the bar for developing smartphones by providing the components and resources that manufacturers need to quickly and cheaply put out devices. So even vendors that lack the huge research and development departments found at Apple or Samsung can still offer competitive products.

To better compete in this segment, Samsung has to make some big changes, like consolidating its portfolio and accelerating the refresh cycle, according to Shah. It also has to cut prices and offer more high-end features on its cheaper models, according to Mawston.

Regardless of what happens next, the big winners will be consumers who, thanks to increased competition, get access to more advanced smartphones at better prices.

Send news tips and comments to mikael_ricknas@idg.com

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