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SEOUL / GUANGZHOU – Samsung Electronics achieved one of its best quarters after sharply shifting its smartphone business toward lower-cost digital sales channels amid a pandemic.
Operating profit in the third quarter increased 58% for the year to 12.3 trillion won ($ 10.6 billion), the company said Thursday, its best result in two years.
Although the breakdown of the segment will not be made until the end of the month, it appears that the recovery of the smartphone business drove the revenue gain.
The segment’s operating profit rose 52% to 4.45 trillion won in the three months ending in September, according to an estimate by South Korean brokerage SK Securities. The black ink would represent more than double the second quarter and a level not seen in six years.
Samsung shipped 80 million smartphones in the quarter, up 50% from the previous quarter, bringing the company to pre-coronavirus levels.
Online sales have fueled the rebound in Samsung smartphones. In places like the US, there are cases where the company’s website offers phones at a 50% discount if the customer applies for a loan and meets other prerequisites.
The web portal used to be focused on product display. The company expanded on-site chat features to guide customers through the stressful paperwork required to complete a purchase.
Samsung launched other campaigns offering generous discounts with Amazon.com and other online retailers, as well as with telecommunications companies.
The South Korean company’s online consumer sales, of which phones make up a large portion, accounted for 40% of all sales in the third quarter, according to KB Securities, up from 15% a year earlier. This change reduced sales promotion activities and excess inventory at physical outlets.
New product announcements have also gone virtual. Even when pricing the expenses associated with online sales promotion, “the marketing costs remained low,” said a securities analyst.
The coronavirus pandemic prompted change online. “We will accelerate it in the future,” said a Samsung executive.
On Thursday, Samsung launched the Galaxy F in India, a series geared towards online sales channels. Equipped with three cameras, the phone is available for around $ 200. This price places the smartphone well below flagship devices. Even so, its functionality exceeds the M series marketed in emerging countries.
India is the second largest smartphone market in the world, with nearly 50% of the phones purchased online due to the prolonged lockdown. Samsung appears to be planning to expand the phone to other countries based on the response from Indian consumers.
Rivals are also investing resources in digital sales. This year, 28% of phones will be bought online, according to a July estimate by US firm Strategy Analytics, up from 24% in 2019. However, each rival is dealing with its own headwinds.
In the second quarter, Huawei Technologies overtook Samsung to become the world’s leading smartphone producer. The Chinese heavyweight was later hit with additional sanctions by the US.
Huawei is likely to lose momentum in the third quarter due to the production slowdown caused by its limited ability to get its hands on semiconductors.
Because the company has been unable to install updated Google apps on its phones since May last year, its share of markets outside of China has declined. Huawei’s second-quarter performance was primarily attributed to the rapid recovery of the Chinese market after the coronavirus outbreak.
China’s Xiaomi and Oppo’s prospects are clouded by product boycotts in India due to the deadly Sino-Indian border conflict. In June, Samsung regained the title of India’s best smartphone seller from Xiaomi, according to Hong Kong market researcher Counterpoint. Samsung has reportedly held the crown for three consecutive months.
Apple generally announces its new iPhones in September, but component procurement complications have delayed this year’s event. With Chinese and American competitors in trouble, Samsung is free to bounce back from the impact of the coronavirus, thanks to its successful online sales strategy.
The industry-wide shift to online stores will have a huge impact on physical outlets. The rapid rise of smartphones has produced a complicated physical network that includes stores run directly by the manufacturers themselves, as well as cell phone outlets, electronics stores, and specialty stores. Whether manufacturers can build an effective online presence will determine who will survive the new normal.
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