Months after a 25% drop in quarterly profit, Samsung today warned of an approximate 60% profit slump for its upcoming Q3 earnings report: Why is it plummeting?

Photo Credit: hyolee2 at Creative Commons

Samsung is busy putting out fires and dampening down expectations these days. Months after a 25% drop in quarterly profit, Samsung today warned of an approximate 60% profit slump for its upcoming Q3 earnings report.

Samsung’s note of caution points out that “declines in the mobile business due to intensified smartphone competition” are to blame. Since Samsung pulls in more than 60% of its profit from mobile phone sales, that’s where it hurts the most.

Here are five specific reasons for the mobile onslaught that Samsung is facing:

1. New Asian smartphone makers are booming

Samsung’s woes are down to a number of hard-to-pronounce Chinese companies like Xiaomi and Huawei. These firms have realized they can make premium-feeling phones for about $300, massively undercutting Samsung’s flagships like the Galaxy S5 and Galaxy Note 4.

The new Xiaomi Mi4, for example, sells for $325 in China, but packs specs and hardware quality largely on a par with the Samsung Galaxy S5, which sells for about $730 in China. Research firm Canalys says that Xiaomi shipped more phones than Samsung in Q2 in mainland China, which means Xiaomi could outsell Samsung for the first time this year.

This scene is being repeated in other major markets where Samsung is close to having its statue toppled, such as India. In India, homegrown phone brands like Micromax and Karbonn are cutting into Samsung’s lead with well localized phones at appealing, more accessible prices.

This trend, which first started in Asia, is now spreading to other markets with the revitalized Motorola brand. Plus, new Asian brands like OnePlus and Xiaomi are exporting their affordable flagship phones globally. For Samsung’s all-important phone business, life will only get more difficult.

2. Samsung is easy to emulate

Samsung assumed the mantle of China’s most beloved smartphone brand from HTC. With little brand loyalty among mass-market Android users, it’s a title as long-lasting as being the Prime Minister of Italy.

That’s because Samsung’s smartphone business is easy to emulate. You make some hardware, slap a skin on Android, and try to corral users into a bunch of web services you’ve pre-installed on your phones.

It’s a lot like the PC market. And that isn’t working out for HP. Samsung’s phone business is in the same dilemma. Which brings us to prices…

3. Prices are going down

All those new Asian phone-makers know what people want, and they know that consumers want things to be cheaper. That’s why the likes of Xiaomi and OnePlus have settled on $300 as the new premium price-point – less than half the usual high-end price-tag of $700 to $1,000 favored by Samsung and Apple.

Increasingly, $150 to $350 is the new normal in emerging markets. While $100 smartphones still look rather rough, have small-ish screens and are plagued by quality issues, going up to $300 is sufficient to buy a great phone with a 5-inch screen or larger. You no longer have to go up to $600 or beyond.

This makes Samsung’s pricey flagship phones look uncompetitive. And, in a knock on effect, its mid-range phones look underpowered compared to other $200 to $300 offerings on the market.

The issue here, says Stratechery’s Ben Thompson, is ubiquity. “The implication of a phone being a need and not a want is massive downward pressure on the average selling price for two reasons,” he wrote this summer. Those two reasons are:

1. Low income buyers who might normally not buy consumer electronics or other computing devices will be a part of the phone market, and will buy low-priced models by necessity. And;
2. Higher income buyers who are uninterested in other consumer electronics or other computing devices will be a part of the market, and will buy the low-priced models by choice.

That price pressure makes the high-end market smaller in relative terms.

4. Samsung’s high-end is not classy enough

So why is Samsung suffering so much when Apple isn’t? That’s because Apple has cachet and it has a strong niche. Apple is like Mercedes-Benz, points out Thompson in the same post. Apple is content in that niche and it doesn’t need to be a mass-market best-seller.

Samsung, however, is all over the dial, and is not able to build up the same kind of cachet as Apple. Samsung is still criticized for the plasticky feel of its phones at a time when better looking and more premium feeling phones like the iPhone 6 or HTC One M8 look like polished gems.

The plastics make the Samsung phones look and feel like their half-price rivals.

There’s also the element of confusion in the Korean giant’s line-up. Samsung has so many smartphone models that there’s a wacky Korean TV game show to be made from Samsung executives being given 20 seconds to inspect one of their own phones and having to identify it – or be plunged into a tank of luminous green goo. Is that the Galaxy Mega? Or the Galaxy Grand 2? Or the Galaxy Grand Prime? Or the Galaxy Core, or the Galaxy S Duos, or the Galaxy Ace, or the Galaxy Young, or the Galaxy Y, or the Galaxy Y Plus, or the Galaxy K, or the Galaxy Note 3, or the Galaxy Alpha, or the Galaxy S5 Mini Duos, or the Galaxy ACE, or the Galaxy Star 2 Plus, or the Galaxy W? I’ve made up one of those – good luck guessing which it is.

5. Touchwiz needs a facelift

This is more contentious and emotive, but some would argue that Touchwiz, Samsung’s Android UI and ecosystem, needs a facelift – or be put out of its misery. “Android without Samsung software is better than Android with it,” concluded theVerge’s review of the Galaxy Alpha. Reiterating what many reviews of Samsung phones have said, the writer found the Touchwiz UI overly crowded, fiddly, and with “unnecessary cosmetic additions like Samsung’s My Magazine news aggregator.”

In the Verge’s reviews of Samsung’s devices, its scores for ‘design’ and ‘software’ are consistently low – usually the lowest out of all its graded parameters. But Samsung is slow to take heed of this feedback.

Samsung’s additions to Android also make for a bloated OS. On the Galaxy S5, the OS takes up a whopping 8GB of storage – that’s half of the space if you buy the 16GB version. In contrast, when you buy a Xiaomi Mi4 (which uses the Chinese firm’s MIUI skin on top of Android), you get 12.11GB of free space (on MIUI V5, because V6 is not yet out to the public), according to the fresh device on my desk.

Samsung’s cheaper rivals are largely doing a better job than the Korean firm. Xiaomi’s MIUI looks better and is less intrusive and distracting; OnePlus is close to stock Android using CyanogenMod. Indian phone-makers also keep it simple, though that might be more out of inexperience than design. Android is strong enough to stand on its own and needs only a few more helpful apps, not the Touchwiz tear-down that Samsung applies to Google’s OS.

This post was originally published on Tech in Asia