Samsung – The wrong switch

Potential reshuffle fails to fix the problem.

• It looks as if it’s the head of sales and marketing who is taking the fall for the recent troubles instead of JK Shin.
• Unfortunately that is likely to achieve nothing.
• Samsung has had a disastrous six months with both market share and margins decreasing despite large price cuts and heavy marketing spending.
• In these situations, it is very common for management to be changed in order to bring in fresh perspective and thinking to try and pull a business out of a nose dive.
• Unfortunately, it looks like Samsung still has not internalised what its real problems are and until it does, things are likely to only get worse.
• Hopes for a recovery in margins is being pinned on the Galaxy S6 which is likely to be launched at an Unpacked event at Mobile World Congress next March.
• Unless this device has some must-have service or function that really wows users, the device is unlikely to make waves.
• These days, it is software and services that get users excited and Samsung has very little understanding of their importance, let alone knowledge of how to deploy them in a fun and easy to use way.
• In order to achieve this, there needs to be someone at or very near the top of the handset business who understands software and services and of this there is no sign.
• The fact that Samsung signed a deal giving away its ability to differentiate in the ecosystem is testament to how little of this understanding exists within current management. (see here)
• Consequently, switching out the head of marketing will do nothing to alleviate the situation where its devices are now perceived as uninteresting commodities.
• During the very difficult Q3 14A, the iPhone 6 was only one sale for a couple of weeks.
• In Q4 14E, it will have been available for the full three months.
• With its much larger screen, the iPhone 6 drastically reduces any reason that a user could have to buy a Samsung Galaxy device.
• Consequently, I fear that Q4 14E will be meaningfully worse than Q3 14A and without any senior executive who understands software, I am very pessimistic on any recovery in 2015E.
• I continue to think that the Galaxy S6 will not restore Samsung’s fortunes and believe that the handset business could easily visit loss making territory in 2015E.
• With much of the street betting that the worst is over, there is still an opportunity to reduce holdings in Samsung.
• Cash freed up should be placed into Google, Apple or Microsoft.