Samsung smartphone woes unfold as Huawei looms | Business| Economy and finance news from a German perspective | DW | 26.04.2019
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Samsung smartphone woes unfold as Huawei looms

Samsung’s new folding phone was supposed to break the mold. Turns out it’s just broken. But how damaging will the postponed launch of the Galaxy Fold ultimately be for the South Korean tech giant?

"With the Galaxy Fold, we're creating a new dimension for your phone...and your life." 

That was February, and the view of Justin Denison, a Samsung marketing chief, at the typically stylized launch of the South Korean company's new foldable smartphone.

"From the screen to the frame to every element you can see and touch, we left no stone unturned," he said, outlining details of how a complex hinge system — which backbones the folding feature — would work. Fast forward to April 23, and a statement from the Samsung press office suggested one or two stones still needed turning.

Reviewers and analysts had been testing the phones ahead of the planned worldwide launch on April 26 and the word coming back from several of them was not good.

In some models, issues with the aforementioned hinge were allowing debris to get in and damage the display. In other cases, those testing the phones were confused about the permanent protective layer on the screens, thinking it a cheap, disposable protector and trying to peel it off, doing damage as a result.

"To fully evaluate this feedback and run further internal tests, we have decided to delay the release of the Galaxy Fold. We plan to announce the release date in the coming weeks," Samsung said. It remains unclear when that date will be.

Samsung Galaxy Fold

In some models, hinge issues were allowing debris to get in and damage the display

Into the fold

Companies like Samsung and Apple place a lot of store in their glitzy product launches. These events are to phone geeks what the World Cup is to football fans. So from every angle, it's dreadful PR for Samsung to have to postpone the launch of the phone they trumpeted so boastfully just weeks earlier.

This false start comes at a bad time for Samsung. On Tuesday, April 30, the conglomerate will announce its full earnings results for the first three months of 2019 (Q1).

Samsung has long since signposted that the results won't be good. The company estimates a 60% year-on-year drop in operating profit. Samsung recorded its biggest ever profit in Q3 2018, but since then it has been badly hit by an overall cooling in the smartphone market and in particular, weak demand for its memory chips.

According to Francisco Jeronimo, a smartphone industry analyst with the International Data Corporation (IDC), one of the reasons for Samsung's hastiness in trying to bring the first foldable smartphone to market is that because smartphones are generally all now so high-spec, increasingly innovative technologies are required to convince consumers of the need to buy a new phone.

Samsung Galaxy Fold event

The Samsung Galaxy Fold launch in February was typically stylized

"You need to give consumers a reason to replace their phones," he told DW. "Foldable provides that reason. You can have a much bigger screen in a compact device that you can carry around in your pocket."

The logic is clear: People increasingly want their phones to function like tablets or laptops, but still need the phone to be small enough to carry in their pocket. According to Jeronimo, the possibilities of 5G make such a device even more attractive.

Samsung's Galaxy Fold is priced at just under $2,000 (€1,797) but Jeronimo is convinced that foldable phones will become mass- market devices within a few years, once prices fall.

Ben Stanton, an analyst with Calalys, agrees. "It has tremendous potential in the next five years, as smaller smartphone brands will start to commoditize foldable phones and bring them down to affordable price points. There is a definite angle with 5G for high-quality content consumption on large screens, such as 4K video or cloud gaming," he told DW.

Huawei, I know you are near

While Apple has no immediate plans to launch a foldable phone, Jeronimo believes that in three years or so they will have one on the market. "Apple don't necessarily want to be the first, but will take the time to make sure they are the best," he says.

Huawei, the main rival of Samsung and Apple, does have a foldable phone on the way. The Mate X is due to launch in June and Huawei has no plans to put the launch date back, despite the troubles Samsung is experiencing.

Watch video 02:23

Huawei launching foldable phone to compete with Samsung

That leaves the possibility that Huawei's folding phone will come to market before Samsung's, something Jeronimo believes would compound the problems Samsung has already had.

"If Huawei is able to bring the phone to market first, without any problem to the consumers, many who were planning to buy the Samsung will probably buy the Huawei instead," he said.

Another source of concern for Samsung is that the technology behind Huawei's foldable phone is very different in that it focuses on a single screen, rather than two. Back in February, Huawei Consumer CEO Richard Yu said Huawei had originally been working on a plan similar to Samsung's but killed it in favor of the new design.

"It was bad," he said of the Samsung design.

The bigger picture

When it comes to PR catastrophes over phone launches, Samsung has serious form.

Back in 2016, the company was forced to recall millions of its Galaxy Note 7 models after it became clear that problems with the battery made the phone a fire hazard. Production was discontinued within two months of the original launch.

The whole episode was an unmitigated disaster for Samsung, both in PR and financial terms. There was the ignominy of the phone being banned from flights around the world and the company lost billions. While it must be pointed out that the Galaxy Fold affair is very different (for starters, there is no suggestion that the new phone will explode or go on fire) it is a PR mess that the company could really do without.

Stanton says the latest episode will "definitely impact Samsung's credibility in the foldable-phone space" but he believes the strength of its other mass market flagships, such as the Galaxy S10 phone, will see it hold up financially.

Galaxy Note 7 melting away

Samsung dealt with a major crisis in 2016, when the Galaxy Note 7 had to be withdrawn from circulation due to models going on fire

He points out that the Galaxy Fold was only due to have 1 million units made in its lifetime, a fraction of the nearly 300 million units Samsung shipped in 2019. As well as that, he doesn't believe technical issues over such a niche product will matter in the context of the changing global smartphone market.

"The battle to be the biggest smartphone vendor in the world is being fought in markets such as India, Indonesia and Russia — the last few remaining smartphone growth markets," he says.

"Devices which sell in good volume here tend to be less than $400 in value. So the battle for the top-spot between Samsung and Huawei will not be won with their expensive flagships, but rather, how competitive their midrange and low-end devices are in emerging markets."

Then there's the news, reported by Bloomberg this week, that Samsung is planning a $116 billion investment to become the world's foremost processor maker by 2030 — a timely reminder that the company's money is still made chiefly from building internal chips, rather than phones.

So while the latest news is certainly not good for Samsung, the bigger picture may yet fold out in its favor.

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