Samsung, HTC Earnings Disappoint: Is the Smartphone Market Saturated?

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By Christina Warren2013-07-05 17:06:07 UTC

This post reflects the opinions of the author and not necessarily those of Mashable as a publication.

Are smartphones the new PCs?

That's not a comment on their functionality, but instead what looks like a sudden saturation of the market. Just as PCs once seemed like a category with boundless growth, the smartphone segment is appearing more and more finite. And this has happened in a fraction of the time.

The latest proof? Samsung and HTC both reported preliminary earnings estimates for the second financial quarter and both companies missed investor estimates.

For HTC, the 83% decline in profit from this time last year is troubling, but it's still a big improvement over the company's disastrous first quarter results.

The company's flagship smartphone, the HTC One, has received wide acclaim. Mashable's tech editor, Pete Pachal, loves the phone and praised its size, interface and feature set. Still, investors worry that sales for the phone peaked in May. We won't have a true picture of the success of the HTC One — or the ill-fated HTC First — until the company releases its final earnings in the next few weeks.

Part of the problem for HTC is that it faces strong competition in the high-end smartphone market, especially from Samsung. Samsung launched its latest flagship device, the Galaxy S4 around the same time as the HTC One and the Korean giant has used its size — and its incredible marketing spend — to good use. Samsung recently claimed it sold more than 20 million Galaxy S4 smartphones.

That doesn't make Samsung immune from investor pressure, however. The industry's largest smartphone manufacturer may have reported Friday record profits forecasts of $8.3 billion, but that still fell short of analyst estimates. As a result, its shares are down nearly 4% at the time of this writing.

Moreover, reduced component orders have some investors questioning whether or not demand for the Galaxy S4 is sustainable or if it has merely tapered off.

A Saturated High-End Market?

A common refrain from financial analysts in regards to HTC and Samsung — as well as Apple — is that the high-end of the smartphone market is becoming saturated.

In other words, the big areas for growth in the smartphone market aren't happening with high-end devices such as the iPhone 5, Galaxy S4 or HTC One, it's happening on the low-end and in emerging markets.

In fact, Asymco analyst Horace Dediu predicts the U.S. smartphone market will reach 80% by October 2014, at which point the market could be considered saturated.

As Deidu explains:

This implies the mode of competition will be changing to smartphone replacement rather than smartphone adoption. To some degree this is already happening but as the net user gains data shows only BlackBerry and Windows platforms have had any net user declines in the last two years. "Platform churn" is still a relatively rare phenomenon.

Branding Becomes Key

If we assume that the high-end of the market is approaching saturation point, branding and brand loyalty become crucial for brands including HTC, Samsung and Apple.

HTC has a great product with the HTC One, but it's having difficulties pushing the phones in large volumes in part because of its tarnished reputation. Just a few years ago, the company was flying high and making some of the best-reviewed and best-performing Android handsets. In a post-Galaxy world, however, the company failed to keep up.

Moving forward, it becomes crucial for HTC to successfully turn a corner as a brand and continue to push out quality products again.

For Samsung, the trick will be to live up to the expectations of the Galaxy brand. With Galaxy, Samsung has managed to do something no other smartphone manufacturer has managed: build a brand that comes close to rivaling Apple in terms of visibility. As I've argued many times in the past, Samsung and Galaxy are more synonymous with Android than Google is.

But that success also comes with strings. Samsung's philosophy of throwing everything against the wall and seeing what sticks might have worked in the early days of the Galaxy line, but if the company isn't careful, it could risk diluting the brand.

Sometimes when I look at Samsung's product line — and see a Galaxy S4, a Galaxy S4 Mini, a Galaxy S4 Active and a Galaxy S4 Zoom — I have to shake my head. (Don't even get me started on the ridiculous and complicated lineup of Galaxy Note and Galaxy Tab devices.) Having an unfocused product strategy with too many devices was one of the things that got HTC into trouble in the first place. I'm certainly not suggesting that Samsung will experience HTC-like problems, but having a focused product strategy is important, especially as the market for new customers shrinks.

What do you think HTC and Samsung's earnings say about the future of the smartphone market? If we're approaching saturation, does that matter? Let us know in the comments.

Image by Mashable

Topics: Business, Galaxy S4, HTC, HTC One, Marketing, Mobile, samsung