It seems that tech giant Samsung Electronics has ended up at commercial cross roads after years of making record growth in profits. The company is now in search of a new growth driver that can aid the company in countering the slow sales of its phenomenally popular and successful smartphones. For a while now, alarm bells have been going off over the company’s dependence on smartphone sales in the most mature markets, which include the United States and Europe and also the emerging markets like India and China that are becoming highly competitive. The largest smartphone maker of the world has a diverse product line that ranges from home appliances to memory chips, but mobile devices contribute more than half of its profits.
The South Korean giant had announced last week that it was on the road for a second consecutive quarter decline of year-on-year profit and in the last year, the company’s stock price reduced by about 10%, which was its first annual profit drop in the last five years. On Friday, the company had rolled-out the latest version of its flagship smartphone globally, the Galaxy S5, whose performance will be under close scrutiny. While S5 has been rated as the top class product by the reviews, they have also highlighted the fact that the device has very little to offer in terms of real innovation for setting it apart from previous models and versions that are also provided by rivals such as Apple Inc.
An analyst said that the smartphone market is highly saturated and a new growth driver is needed for mixing it up a bit. He added that it is inevitable that companies will have to shift towards low end markets where competition is intense and margins are low. He mentioned that Samsung had indeed reduced its spending and marketing costs, but this was only a defensive measure against the slowing sales rather than a proactive one that would boost innovation. Moreover, Samsung and other export powerhouses of South Korea are suffering a bit from the strengthening of the won against the US dollar.
The firm had previously mentioned that sharp swings in currency price had cost the company a total of $676 million of revenue in the fourth quarter of 2013, which had led to a decline in profits of about 6%. There is also a general consensus evolution in the smartphone market has hit a wall, which only makes room for incremental improvement on the existing technology and design and doesn’t introduce any market changing innovation. According to numerous analysts, wearable devices will emerge as the next big thing.
According to research firm Gartner, by the year 2016, wearable technology will become a $10 billion dollar industry. So far, the devices that have been introduced in this industry include Google Glass of Google Inc. and SmartWatches from Samsung Electronics and Sony Corp. As per rumors, LG and Apple are also working on their own versions of SmartWatches that are expected to be released by the end of the year or next year.