Companies in the handset business envy RIM (RIMM) and Apple (AAPL) and covet their market share in the smartphone business. Analysts assume that the Blackberry and iPhone will slug it out, vying for the top market share position. Companies including Palm (PALM) and Nokia (NOK) will be left with crumbs. Motorola (MOT), once the No.2 producer of handsets worldwide, will not even survive.
The company that may upset the expected future of the smartphone business is Samsung, one of the largest consumer electronics companies in the world, and, by many measures, the No.2 maker of handsets. According to Reuters, “Nokia and Samsung Electronics Co Ltd, unveiled new phones on Monday, offering features comparable to iPhone and Pre, but at lower prices.” Nokia has been trying to push into the smartphone business for two years, and has not had much success. On the other hand, the Samsung Instinct was Sprint’s (S) flagship smartphone until the Palm Pre shipped three weeks ago.
Samsung not only has some smartphone products that are doing well. It also has the balance sheet to attack the market through pricing. While Palm cannot afford to work on tiny margins, Samsung can if it thinks the move will improve market share.
Investors are already concerned about gross margins and RIM and Apple. Looking at Apple’s prospects Richard Gardner, of Citigroup, said that the price cuts, along with back-to-school promotions “should push down margins in coming quarters” after reaching a likely peak during the first quarter of the year, according to MarketWatch.
Lower earnings at RIM and Apple may cause investor revolts. Shareholders in both companies are used to rising revenue which have not come at the expense of gross margins. Analysts have assumed that premium products come with premium profits. Samsung could do more to put price pressure on the two smaller companies than any other competitor in the market.
After the launch of the iPhone many experts assumed that the consumer was prepared to pay $300 for handsets that could hold high prices based on brisk demand. The premise always had its foundation on the assumption that no company was willing to rock the market by accepting slim margins. using it as leverage to push competitors to make unpleasant and unforeseen economic decisions.
Samsung is about to break the smartphone industry’s greatest economic appeal, which is that customers will pay almost anything for hot product.
Douglas A. McIntyre
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