The WSJ is reporting ($) that Samsung is considering a significant management shake-up to address slumping Galaxy S5 sales and an overall deteriorating mobile device outlook.
I have the following thoughts/questions:
- The WSJ, citing sources, reported that Samsung management mistakes and errors contributed to a significant Galaxy S5 inventory buildup "forcing Samsung to increase marketing expenditures to unload the devices". That line sounded odd to me given that Samsung had just come off of a record year for marketing costs, spending $14B in 2013, nearly 14x more than Apple on a dollar basis. Considering most of Samsung's 2013 phone sales involved some portion of this marketing/carrier promotion, were continued 2014 phone promotions actually a result of management incorrectly estimating demand or did Samsung simply carry-over some of these now dependent promotion practices from 2013 to maintain sales momentum?
- The article says 12M Galaxy S5 smartphones were "sold to consumers" in the first three months following launch. That figure seemed low to me, especially when I think back to prior WSJ articles, around the time the Galaxy S5 launched, discussing Samsung's bullish prospects and sales figures. After a few minutes of searching, I found($) the WSJ's "Samsung Says New Galaxy S5 Is Off to Strong Start" article in which Samsung Mobile Chief J.K. Shin was interviewed. He said sales of the Galaxy S5 were 11 million in the first month, outselling the Galaxy S4 by a million. Shin went on to say S5 sales were "much stronger than the Galaxy S4". How did the number of Galaxy S5 phones go from 11 million for the first month of sales to 12 million for the first three months? I assume it once again comes down to the "ship" vs. "sold" dynamic, where Samsung's sell-through sales were much weaker than units shipped to carriers, but that doesn't give me much comfort as Shin even went out of his way and commented that S5 sales were much stronger than S4. I am left wondering if Shin was lying or if this is a case of Samsung losing touch with reality and not even having data as to how their phones were selling.
- Galaxy S5 sales were down 50% in China versus Galaxy S4 during the first six months of sales, while the U.S. was the only major market where S5 sales were better than S4. Low-end Chinese smartphone competitors are impacting Samsung much more than third-tier phone vendors in the U.S., where Samsung faces slightly less competitive pressure on the low-end and subsidies mask some of the price differential. I suspect promotions are still playing quite an active role in the U.S. as well.
All of this stands in stark contrast to Apple's iPhone strategy where product sell-through numbers don't diverge much from shipped figures, especially when Apple is experiencing a supply/demand imbalance, and if there is a difference, Apple will clearly indicate the change in the earnings conference call. Apple's now notorious relationship with carriers, which include sometimes aggressive iPhone sales benchmarks and contracts, compare to Samsung's reliance on carriers for data about its products and markets. With Samsung overshooting Galaxy S5 demand by 40%, either management misread the market incorrectly or other opportunities and products served as a distraction. Given all of the turmoil, it's fair to start wondering if Samsung's response to the Apple Watch, if there will be one, is delayed or at least put on hold as a result of the company's mobile struggles.