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Samsung faces 'China storm'

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Models take a picture using Samsung Electronics' Galaxy Note 4 phablet during the New York Fashion Week, in New York, early this month. Samsung plans to promote the latest device in China to offset concerns over margin profitability due to the rise of budget Chinese smartphone vendors. / Korea Times file
Models take a picture using Samsung Electronics' Galaxy Note 4 phablet during the New York Fashion Week, in New York, early this month. Samsung plans to promote the latest device in China to offset concerns over margin profitability due to the rise of budget Chinese smartphone vendors. / Korea Times file

Company focuses on China as US disputes with Apple end


By Kim Yoo-chul

China is no longer a land of opportunity for Samsung Electronics, the world's biggest smartphone manufacturer, as the company's bottom line is being threatened by the rise of budget Chinese vendors.

China is the largest smartphone market in the world, accounting for 37 percent of global smartphone shipments, according to an analysis by Canalys, a market research firm.

That means China is a very important market for all smartphone manufacturers, including Apple in the high-end segment.

Even when the focus of the smartphone market has shifted toward better pricing and more advanced hardware specifications, Samsung can't afford to lose the Chinese market because of the growing demand for the device there.

Apple has long been considered as Samsung Electronics' chief rival in the mobile business segment.

But Samsung officials say a major change in the Chinese market has prompted the company to revise its strategy and to realign its structure.

On Aug. 6, Samsung and Apple agreed to end all patent disputes in non-US countries, including Apple's intellectual property suit against Samsung in the US.

According to Samsung sources and industry analysts, Samsung entered into the agreement in an attempt to save costs and divert resources to improving Samsung's smartphone business under growing pressure over profitability.

"Competing with Apple was our main goal years ago, as Samsung, a latecomer in the industry, needed to raise its awareness in the global market. The Apple disputes were necessary and effective. Now, however, we have new targets as our top position in the global market is being challenged," an official at one of Samsung Group's technology affiliates said by telephone.

Samsung, however, declined to comment about its reasons for signing the truce with Apple.

Sense of urgency

Samsung feels a sense of urgency regarding its performance.

IDC, another market research firm, said Samsung was only the fifth-largest smartphone vendor in China by the second quarter of this year, with a market share of less than 10 percent, behind Lenovo, Xiaomi, Coolpad and Huawei Technologies.

Samsung's operating profit for the period was only 7.19 trillion won. This is the first time in two years that Samsung reported a quarterly profit of under 8 trillion won in the country.

Samsung's lost momentum, owing to higher product inventories and increased marketing expenses, negatively affected its business in China.

Its second quarter revenue dropped to 8.95 trillion won, down by near 2 trillion won from a year ago.

Samsung is working to prevent further losses, with its top management implementing protocols.

Samsung said Choi Gee-sung, the head of the conglomerate's future strategy office, which functions as the control tower for all key decisions of the affiliates, made a quick one-night, two-day business trip to China during the Chuseok holiday.

"It is rare for Choi to directly check up on a certain group affiliate," said one Samsung official. Choi held a meeting with senior company executives over issues that need to be addressed.

According to another report from market research firm Counterpoint, China could soon overtake Japan as the second-largest long-term evolution smartphone market after Chinese telecom operators like China Mobile decided to roll out 4G technology by the end of 2014.

China Mobile is the world's biggest telecom provider with 800 million subscribers and thus, is a crucial partner for Samsung.

While local brokerages expect the smartphone titan to report less than 5 trillion won in operating profit for the third quarter, they also say Samsung's business in China may improve and stabilize throughout next year owing to the company's proven competiveness in early product releases, on-time delivery, better pricing, output commitment and improved specifications.

To ride on the market changes, Samsung is paying more attention to the low-end smartphone segment to entice more clients in populous emerging markets, including India.

"The global smartphone market is seeing a rationalization. It's a waste of time for Samsung to focus on external growth. The issue is how to control a new ecosystem with proven technologies. For that, Samsung's shift toward content will pay off," said Yoon Young-soo, an economist at Samsung Economic Research Institute, adding that the company's advantage in wireless patents will help defend the company against potential patent troubles with Chinese competitors.


Kim Yoo-chul yckim@koreatimes.co.kr


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