Monday, 27 February 2017

Sorry week for Samsung

By Nick Wood, Total Telecom
Friday 17 February 17

Company heir arrested in the same week that more stats confirm Apple is top of the smartphone table.

Power, if not wielded properly, can blow up in your face. Just ask Samsung, which this week saw further proof that its exploding battery problem cost it top spot in the global smartphone market, and the arrest of heir apparent Lee Jae-yong for his alleged involvement in currying political favours in return for charitable donations. Lee is accused of making 41 billion won (€33.51 million) worth of donations to non-profit foundations owned by Choi Soon-sil, a friend of South Korea's president Park Geun-hye, reported the BBC on Friday. In return, Lee allegedly sought political support for a sweeping restructuring at Samsung that would pave the way for him to officially take control of the company from his father…

Power, if not wielded properly, can blow up in your face.

Just ask Samsung, which this week saw further proof that its exploding battery problem cost it top spot in the global smartphone market, and the arrest of heir apparent Lee Jae-yong for his alleged involvement in currying political favours in return for charitable donations.

Lee is accused of making 41 billion won (€33.51 million) worth of donations to non-profit foundations owned by Choi Soon-sil, a friend of South Korea's president Park Geun-hye, reported the BBC on Friday. In return, Lee allegedly sought political support for a sweeping restructuring at Samsung that would pave the way for him to officially take control of the company from his father, Lee Kun-hee, who suffered a heart attack in 2014.

Choi is already on trial, accused of coercion and attempted fraud as she allegedly used her relationship with the president to try and influence political decisions. Korea's parliament, meanwhile, voted in December to impeach president Park.

Samsung denies any wrongdoing.

The damage to Samsung's reputation in this instance will likely be limited to South Korea. The ethical credentials of the companies that make our consumer electronics are generally reported on, but they rarely influence the average consumer's buying decision, particularly if that consumer lives in a different part of the world.

"An HDR screen, you say? Brilliant, but answer me this: how many conflict minerals are in this phone? Are the manufacturer's employees paid a living wage? What is the company doing to minimise its carbon footprint? Has the CEO ever had anyone beaten up?" are questions that have probably never been asked of a sales rep, ever.

Apple under Steve Jobs had a reputation for not doing much for charity, but that didn't stop millions of people buying a new iPhone every quarter. Incidentally, that reputation was not wholly merited, given Apple's long-running support for charities like Product Red, an AIDS charity.

Back to Samsung though, and the real and long-lasting damage to its reputation, funnily enough, stems from its spontaneously combustible Galaxy Note 7 phablet, which was permanently pulled from sale last October.

Earlier this month, research firm Strategy Analytics published shipment numbers showing Samsung ceded first place in the smartphone market to Apple in the fourth quarter of 2016.

This week, Gartner published figures for smartphone sales to end users that also show Samsung slipping to second place.

"The withdrawal of the Galaxy Note 7 left a gap in its large-screen smartphone range," said Anshul Gupta, research director at Gartner, on Wednesday.

Samsung sold 76.78 million smartphones in the three months to 31 December 2016, a considerable drop from the 83.44 million it sold in the corresponding quarter a year ago. Contrast that with Apple, which sold 77.04 million in Q4 2016, up from 71.53 million.

"The last time Apple was in the leading position was in the fourth quarter of 2014, when its sales were driven by its first ever large-screen iPhone 6 and 6 Plus," noted Gupta.

"This time it achieved it thanks to strong sales of its flagship phones – the iPhone 7 and iPhone 7 Plus; it also benefited from the weakened demand for Samsung's smartphones in mature markets," he said.

Indeed, without the Note 7, Samsung has had to ramp up marketing of its S7 and S7 Edge smartphones, which were unveiled at Mobile World Congress back in February 2016, which is a long time in the smartphone market.

This situation is unlikely to change any time soon too, given that the Note 7 fire problem – confirmed in January as being caused by faulty batteries – has led to a delay to the unveiling of its next flagship phone, the Galaxy S8.

That hasn't stopped Samsung organising a press conference for this year's Mobile World Congress though. Press invitations, sent at the beginning of February, include a teaser image of what could be its next Galaxy tablet.

This will be a critically-important press conference for the head of Samsung's mobile business, DJ Koh. He needs to show that the company has taken the Note 7 battery problem seriously enough that consumers can trust that Samsung's upcoming devices won't catch fire all by themselves. At the same time, he must also try and move on from the whole saga, otherwise the first question at every press conference for the next year will be about batteries.

If he doesn't manage to pull off this feat of public relations, then Samsung could well find itself ranking second for longer than just one quarter.

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