Last April I opined upon the mobile market in 'My "Hardware IS Dead" Thesis Has Now Torn Through Every Major Handset Provider [6]'. Samsung and Apple, the market leaders have been on a structural decline from a fundamental basis, but Apple in its usual RDF fashion has convinced many that long term trends no longer exist... because the iPhone 6 has been release!
Xiaomi, a Chinese OEM is quickly gaining on Apple and Samsung. It sold 61 million phones last year, a 227% increase year over year! Revenues are up 135% over the same period. This company is growing dramatically faster than Apple and Samsung, and is much too large to ignore as a peripheral competitor. Here's the kicker, it operates off of ~1% margins!
No matter which way you look at it, the margin compression thesis is bound to subsume the big boys. Now, I called the Apple short before it became vogue [7]! I called the Blackberry short before [8] they became the industry whipping boy! I warned about Nokia and made clear that Samsung Will Be Ready To Do That Fruit Thing [9]! How'd I know all of this? It's quite simple, I explained it all in 2012 - Smartphone Hardware Manufacturers Are Dead [10].
The only way for manufacturers to avoid doing the Blackberry is to a) move to software (cloud) services for margin via a closed (or semi-closed) ecosystem or to b) up their hardware game. Option A is hard with competition from those with network effect working towards their advantage, ex. Google and Apple. Option B is extremely capital intensive, not to mention plain old hard as hell to execute.
Alas, I wouldn't write Samsung off just yet. Apple has a significant revenue boost from the launch of mobile phones which addressed the pent up demand for larger screens. This will, in the short term, not only boost Apple revenues but put a material dent in Samsung devices, solely because Samsung is no longer the only (big brand name) game in town for those consumers who don't comparison shop (most of them). The biggest short term market is in wearables, though, and it is there where Samung stomps all over the competition in both hardward and software - not to mention core functionality.
I welcome all to research the Samsung Galaxy Gear S (ignore the critic reviews and read the comment section below each review, there seems to be a concerted effort to ignore the advantages proffered by this device in favor of devices that are either vastly inferior or not even offered for sale or demo yet).
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