Samsung's Smartphone Profitability Falls Behind Chinese Rivals'

Chinese manufacturers have made more profit from selling smartphones around the world than top-ranked manufacturer Samsung, according to the latest data.

This has raised concerns that Samsung is being squeezed out between rival Apple, which dominates the premium market, and Chinese rivals which are quickly encroaching on Samsung's share in key markets.

According to Hong Kong's Counterpoint Research on Friday, Huawei, OPPO, Vivo and Xiaomi generated US$2 billion in global profits in the second quarter of this year, which was 20 percent of the total profits of 600 smartphone makers around the world.

Apple accounted for 62 percent of industry-wide profits and Samsung for 17 percent. That means all other phone makers combined accounted for only one percent of profits.

Just two years ago, Chinese smartphone makers did not even come close to Samsung in terms of profitability. Apple enjoyed much the same distant lead, but Samsung accounted for 28.8 percent of global profits and the four Chinese manufacturers for a paltry 7.9 percent.

But Samsung wrote them off too fast as minor players interested only in selling cheap products in emerging markets. Instead, they added premium models to their lineup and produce hundreds of millions of handsets annually, posing an increasing threat to Samsung.  

One electronics industry insider said, "In the market for premium phones that cost more than W1 million, Apple's dominance remains untouched, but Samsung is being threatened by Chinese rivals in the market for phones costing between W500,000 and W1 million," (US$1=W1,118).

Adding to its woes is that sales of the premium Galaxy S9 have been poor.

Chinese smartphone makers sell cheap to mid-priced phones in China and India and target the European market with premium handsets. The big four sold 143.4 million handsets around the world in the second quarter, about twice as much as Samsung. Moreover, while Samsung's sales dropped 1.7 percent compared to the same period of 2017, the Chinese companies' sales have risen steadily.

Now Apple is moving onto Samsung's turf of bigger screens, thwarting Samsung's marketing blitz with its own 6.5-inch OLED screens for the iPhone XS Max -- a direct challenge to the Korean rival's Galaxy Note series.

Apple's cheaper iPhone XR comes with a 6.1-inch LCD screen and sells for US$700, positioning it directly against Samsung's W700,000-800,000 price range for most key handsets.

Strategy Analytics said in a recent report that Apple is projected to sell 79.1 million phones during the fourth quarter this year powered by sales of the new models, beating top-ranked Samsung, which is expected to sell 73.2 million.

Samsung's profit margins per phone have always been minuscule compared to Apple's, but in the past it has partly made up for it with sheer volume and an endless variety of models.