Samsung dropped 4.59% on the first day of trading in 2014, wiping nearly $9 billion off the company’s market value. One of the chief causes for concern for investors was the ever-growing market of budget smartphone devices, and the impact it could have on prices.
Samsung’s decline was its biggest in seven months, and analysts expect the South Korean company to post slowing profits for the fourth quarter of 2013. If cheaper phones continue to prove popular, the firm may have to decide between keeping its gigantic market share, and slicing its profits margins.
Newer, cheaper offerings are starting to push down the price of devices. Last month Google’s Motorola division unveiled the Moto-G, as it looked to target less affluent consumers with a very capable, cheaper smartphone. And this week Google cut the price of its flagship device, the Moto-X, from $550 to $350. The Moto-X, is in direct competition with Samsung’s Galaxy S4 device, which is sold for $600 without a contract.
Budget smartphones are extremely popular in China, and there has been much disruption in that region. Apple recently signed a deal with China Mobile to sell iPhones in China, an agreement which will reportedly add up to $3 billion in added revenue this year. But it is the budget market that is really heating up.
Chinese low-cost smartphone manufacturer Xiaomi announced plans to double sales of its devices in 2014. Xiaomi reportedly sold 18.7m devices in 2013, an increase of 160% from the previous year. The company projected it would sell 40 million devices this year.
Xiaomi brings a new business model to the smartphone market. Hugo Barra, who joined Xiamoi from Google’s Android team, said last year that the firm is happy to sell its phones at cost, and then make its money from the services it provides. The firm’s main offering, the Mi3 smartphone, is available for around $330 and the company reported the first 100,000 were sold out in 90 seconds when it was released in October. The company only operates in China, Taiwan and Singapore currently, but the appointment of Barra strongly suggests the firm will go global soon.
Another Chinese smartphone maker, Huawei, unveiled its ‘Honor’ series of phones in December, which also target the budget market in China. The most powerful of the two phones announced, the 3X, will be sold for around $280 without a contract.
The budget market in China will become even more competitive as more devices are launched and costs drop lower. And this boom in cheap smartphones is likely to be replicated all over the world. The most pertinent question now is – will the likes of Samsung and Apple adjust accordingly?