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By Oren Laurent
President, Banc De Binary
The markets might be troubled by the massive nosedive Apple Inc. stock has taken in the past 6 months – a 10% plunge, to be exact – but as the saying goes, it could always be worse. And for Samsung Electronics Co., it most definitely is. In the cutthroat smartphone arena, the company’s Galaxy product has not been delivering, to say the least, and waning demand has led to a 16% fall in the share since 2015 commenced. The company’s stock lost $60 bln since this year’s peak and continues to drop with each passing week.
The less-than-stellar performance of the Galaxy S6 has led to a recent price cut, which is rather unusual considering it launched only four months ago. In the UK, the S6 now sells for GBP 499 with the hopes of overcoming disappointing, and quite unexpected results. Debuting to rave reviews, the S6 had a restricted supply, which, in turn, led to unsatisfactory sales.
So, who is chipping away at Samsung’s earnings? It started with Xiaomi and Huawei, who have since taken up a much larger slice of the smartphone market and occupy the top two positions in China’s mobile market for Q2 (with Apple’s iPhone in third place and Samsung lagging fifth).With the recent announcement that Xiaomi is planning to build its own processors as early as next year, the Korean giant will most likely continue to lose momentum.
However, as of late, new, even smaller and more obscure players have entered the ring, simultaneously damaging Samsung’s already subpar performance, and rewriting the rules of the industry. One such smartphone brand is Vivo. If you were to ask about it outside of China, you will most likely be met with a resounding silence, but this little engine that could is making a name for itself on its home turf. According to Canalys research, Vivo’s market share took a giant leap from 4% a year ago to 8% by the end of June 2015. Vivo took fourth place in the top five ranking mentioned before, and its incredible growth graph is something to behold.
Vivo’s model can also be seen with Oppo, another Chinese smartphone maker that is staying close to its roots and finding domestic success. What is the secret formula for these companies’ growth and how have they been able to push Samsung so brutally out of the limelight? Their sales have focused exclusively on smaller cities in China, and have been completely retail oriented, forgoing the ubiquitous e-commerce.
Nicole Peng, research director at Canalys, explained the relatively simple, yet quite ingenious method in a recent interview. “Oppo and Vivo have a [smaller] number of distributors, but these distributors are exclusive to them.” In a world dominated by e-commerce giants like China’s very own Alibaba, it seems almost archaic to rely on distributors, but these up-and-coming brands are proof that good relationships (and a promise of margin level) goes a long way. Distributors have an incentive to boost sales and offer better in-person service, elements that are crucial for the establishment of a solid reputation as a quality brand.
With Vivo and Oppo winning by a landslide in third-tier and fourth-tier cities, how imminent is their arrival at the real power centres of China? With Samsung expected to debut it phablet-sized Note 5 this month, the question remains: will the electronic giant be able to climb back or will it succumb to its younger competitors? Whatever the answer, it will surely have a lasting impact on the mobile and electronic industry in China.
Please note that this column does not constitute financial advice.
