Samsung Electronics said it will cut the number of smartphone models it offers in 2015 by at least 25 percent in a bid to slash costs and boost profits.
"In 2015, we will lower the number of smartphone models by one fourth to one third compared with this year," Robert Yi, Samsung's head of investor relations, told an investor forum in New York, according to the Financial Times. "[This] would allow us a chance to lower the prices of [remaining models] through mass production." His remarks were confirmed by a company spokesman, according to the Wall Street Journal.
Samsung did not say how many models will be affected by the decision or how many models it will produce in 2015. Samsung has been producing new versions of its higher-end Galaxy S smartphones and Galaxy Note phablets regularly for years now, as well as variants of those devices. Samsung also produces a slew of lower-end and mid-range phones.
Samsung rose to dominate the global smartphone market by producing phones at a wide range of price points, in contrast to Apple's (NASDAQ: AAPL) focus on the premium segment and a host of rivals attacking the lower end of the market. Samsung's shift in strategy is an acknowledgement that Samsung's game plan is no longer working as well as it once did, as the company faces intense pressure from Chinese rivals Xiaomi, Lenovo, Huawei, ZTE and others. The reduction in the number of models it produces could help Samsung better manage its inventory and supply chain.
The news is just the latest example of Samsung working to cut costs. A Samsung executive said last month during the company's earnings conference call the company will increase the number of components shared across mid- to low-end models to leverage economies of scale, according to the Journal.
Samsung achieved operating-profit margins for its mobile unit of above 15 percent for 10 consecutive quarters, but in the third quarter the Samsung's margins from its mobile and information technology fell to 7 percent, their lowest since 2008. Looking ahead to next year Samsung will focus on achieving "sustainable double-digit percentage margin" in mobile phones, Kim Hyun-joon, a senior vice president at Samsung's mobile unit, said last month. However, Evercore ISI analyst Robert Cihra wrote in a research note that Samsung's mobile margins are likely to remain below 10 percent next year.
In the third quarter, Samsung's operating income at its mobile unit fell 74 percent year-over-year, while mobile sales fell 15 percent from the second quarter and 34 percent from the year-ago period.
"It is time for the company to make choices and focus on a few competitive models to compete better with Chinese rivals that can offer similar products at significantly lower prices," Nomura analyst Chung Chang-won told the FT. "Its margins will be squeezed further as the company tries to cut prices while improving specs."
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