Why an analyst thinks Samsung will stop making smartphones in 5 years, and why I disagree.

Ben Bajarin

As the market leader for Android, Samsung – both the company and the devices it makes – receives the lion’s share of attention from the media and many consumers. The world waits with bated breath for the next big thing to arrive, though some are lining up waiting for it to “fail”. The smartphone market has changed dramatically in the past couple of years however, and it is the latter sentiment which seemingly grows greater with each passing month. One analyst has now gone as far with the doom and gloom predictions to suggest Samsung will exit the market in 5 years time.

Specifically, Ben Bajarin, head of research at market research firm Creative Strategies, decreed that “Samsung will be out of the smartphone business within five years.”

His argument is largely centered around the idea that, essentially, the smartphone market has commodititized:

“Android’s new premium price point is between $300-$400 and the new mainstream Android smartphone price point is under $300. No other Android OEM, Samsung included, will sell in volume anything above those prices. At those prices, cutting edge innovation will be void, meaning the gap between iPhones and Android will grow.”

And:

“If you are not familiar with the Innovator’s Dilemma, it is that, as a market matures, the early innovators get disrupted by competitors who come into their space with lower priced products, similar specs (the specs that matter), and eat into the market share of the early innovator in the category. Once the market embraces good enough products, the innovator can no longer push premium innovations as their value is diminished once a good enough mentality sets in. Android devices in the $200-$400 range are good enough for the masses leaving Samsung’s $600 devices and above stranded on an island.”

Personally, it is difficult to believe that Samsung will ever “abandon” the smartphone market, as Bajarin suggests. Here’s why.

1. Apple’s continued success is clear evidence people will pay premium prices. Bajarin’s thesis centers around the belief that Android smartphones have – on average – dropped in price point. Yet clearly, smartphone prices have not really changed. Apple not only managed to charge the same amount for this year’s 6S hardware refreshes, it actually sold more units than last year. Bajarin fails to account for the simple idea that customers who want to save money could just buy a cheap Android as an alternative.
2. Bajarin’s thesis is largely centered around the idea that the smartphone market has essentially fallen into the same hole as the PC market. Most laptops now cost between $300-700 whereas they used to sell on average for almost three times that if not more. And yet. Microsoft’s Surface line is expensive. The Surface Book is super expensive. VAIO has an even more expensive product. The idea that the entire world will collectively have the same definition of pricing standards is both erroneous and narrow-minded, and is the exact reason why choice exists.
3. Samsung has been making mobile phones for how many decades now? Bajarin explicitly mentions how the market has changed so much recently, yet fails to appreciate the fact that the market exists period. Jump back to 1998, or even 2004: were mobile phones the sensational tech-fest they are today? Nope. And yet Samsung – along with countless other OEMs – made, and continued to make devices even back then.
4. Let’s be realistic here: Samsung, with all of its industries and divisions, is quite capable of competing directly with rival OEMs, the ones who are lowering prices. There is nothing actually stopping the company from lowering its prices, it just isn’t. This is exactly what Sony refused to do, however unlike the Japanese corporation, Samsung has been extremely aggressive about remaining competitive with new ideas and products. Why does Samsung continue to charge $800 for the Galaxy S line? Because it can. It’s the same reason Apple charges a small fortune for its products. If devices like the OnePlus 2, for example, can do high specs at a low cost, then why couldn’t Samsung as well? It certainly could, and at the very least – given the fact shareholders want results and not write-offs – the company would seemingly, sooner cut prices than exit the market entirely, thereby admitting defeat and sending investor confidence spiraling.
5. Bajarin also mentions the idea that Samsung missed estimates this past quarter. It missed estimates, the likes of which are in part fueled by speculators such as himself. People who make bold claims about what might happen to any given company based on data that is often mathematically sound, yet fails to account for any kind of sudden change or unexpected occurrence.

Ultimately only time will tell how accurate this “death watch” proves to be. Just yesterday Samsung’s Vice Chairman had some very bold words to say about his company’s future, and indicated that significant, major changes were needed to continue on and survive.