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Samsung's Galaxy S5 Problem Isn't Plastic

There seems to be this common misconception going around that Samsung's (NASDAQOTH: SSNLF  ) Galaxy S5 has been "poorly received" because Samsung chose to stick with plastic rather than go with metal for its next-generation smartphone. While there are fairly vocal critics in the tech press of Samsung's design decision, the fact remains that Samsung's Galaxy S5 problem has never been -- nor will it ever be -- that it's made of plastic.

Surprise! The market for (plastic) smartphone cases is gigantic
This is a pretty informal observation, but how many smartphone users do you see using their smartphones without some sort of protective case? As an iPhone 5s user who doesn't put a case on his iPhone, I have friends and family constantly telling me that getting a protective case -- usually one made of plastic, mind you -- would be a good idea. Even Apple (NASDAQ: AAPL  ) itself advertises leather cases for its iPhone 5s.

Source: Apple. 

So, given that a good chunk of smartphone users put cases around their phones, especially in the high end of the market, it would seem that the actual material the smartphone is made of isn't a first order of consideration when customers decide to buy a smartphone.

In fact, one could argue that Samsung, in going with a less expensive and more durable plastic casing, is making the economically prudent move by saving money on what consumers don't care about, in order to include features that customers do care about (like a higher-megapixel camera, larger screen, removable battery, faster processor, and the like) while keeping margins intact.

Source: Samsung.

A financial reality check
While the tech press has taken the opportunity to claim that Samsung is "struggling" to profit off its smartphones, nothing could be further from the truth. Does Samsung makes as much as, say, Apple does? Of course not, but it puts just about every other Android handset maker to financial shame. In fact, in the most recent quarter, Samsung's mobile group turned in a whopping $6.27 billion.

Source: Samsung.

How much did LG's mobile group make last quarter? Well, do the words "negative operating margin" ring any bells?

Source: LG.

HTC, which recently released a premium metal smartphone packing the latest and greatest specifications, saw gross margins of 21% in the most recent quarter and operating margin of negative-6.2%. Clearly, even with a premium metal smartphone, HTC can't bring in the revenues or the profits in the way Samsung can.

What's the Galaxy S5's problem, then?
The Galaxy S5 could be made of plastic or metal, but it wouldn't change the following facts:

  1. The smartphone market is shifting toward the low-end value space.
  2. The high end of the market is increasingly dominated by Apple, which has competitive advantages that go far beyond the hardware and specs.

Of course, some of the tech press will harp on the plastic Galaxy S5, but the fact is that Samsung should be optimizing its cost structure and delivering functional value and promoting its brand to drive sales. In fact, this is what Samsung has been doing, and it's a big part of the reason Samsung's mobile division is still wildly profitable while LG, HTC, and the like are in the red.

The Galaxy S5's problems are simply Apple and secular trends -- not the fact that it's made of plastic.

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Read/Post Comments (18) | Recommend This Article (28)

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  • Report this Comment On May 11, 2014, at 8:22 PM, zippero wrote:

    Another great article, Ashraf! Samsung's problem is beyond mere plastic. It's the unavoidable commoditization of the entire Android OEM field because, whether encased in metal or plastic, these phones all offer basically the same undifferentiated Android OS product. Just as Windows OS is undifferentiated across Dell, HP, Lenovo, Acer, Asus, etc., the Android OS is undifferentiated across Samsung, LG, Huawei, Lenovo, HTC, etc. Sure, there are some superficial differences, but at bottom they are all Android. Without any point of differentiation other than price, the entire Windows and Android industries compete largely on price alone and race to the bottom. With 1% profit margins at best and constant price pressures from other Android OEMs, Android OEMs must cut corners and BoMs go down, so quality goes down along with balance sheet fundamentals. It's a vicious cycle for the Android players but a virtuous cycle for Apple.

  • Report this Comment On May 11, 2014, at 8:42 PM, TMFAeassa wrote:

    @ zippero

    Thanks for the comment!

  • Report this Comment On May 11, 2014, at 8:43 PM, webguy76 wrote:

    You clearly have no idea what you are talking about. The Galaxy S4 and S5 (heck even the S3) are all awesome phones. Every HTC phone that came to the market was solid and performed well. What Apple does right is generate a buzz. They are masters at marketing, that's all it is. Now, 4 or 5 years ago sure they had a superior product. But each time I upgrade to the latest Galaxy phone (today the S5), my "Apple friends" look on in envy. The larger, brighter screen, more power, better camera, expandable memory, and you aren't tied into iTunes. The main thing holding people back from switching phones like I did, is they are scared to change. I would bet if the S4 or S5 or the HTC Once were Apple phones, they would be top sellers.

  • Report this Comment On May 11, 2014, at 9:09 PM, DSTDen wrote:

    Another ridiculous article from this site. The primary reason for putting a case on any phone whether it's plastic or metal is to keep from voiding the warranty. Every cell phone company across the board with deny a warranty return if there are any marks or scuffs beyond what they consider normal wear and tear and apple is the worst at being picky on that point.

    @zippero, there are massive differences in the android experience depending on which phone model you are using. Samsung makes some pretty good android phones with their galaxy line but they also make some of the very worst android phones.

    Webguy76 is exactly correct that the only thing apple has going for them nowadays is they have a truly great marketing department, other than that the really are years behind the competition and I would like for once to see an article on here that's not completely biased towards apple based on personal opinion.

  • Report this Comment On May 11, 2014, at 9:36 PM, normgarry wrote:

    SAMSUNG has flooded the market with smartphones while Apple releases just one new replacement product each year. SAMSUNG phones are CHEAP, easy to get on just about any network and lack the "exclusivity" of iPhone.

    iOS is a far superior operating system than Android specifically due to its painful simplicity. Not everyone cares about user-defined expandability and PC-like features. Many users just want something that is easy to use and consistent.

    SAMSUNG has been copying and playing "one over you" for a very long time.

    iPad didn't have a rear camera - Samsung Galaxy Tab did.

    iPhone's screen wasn't bigger? Samsung made their's bigger.

    iPad doesn't accept SD cards? Our tablet will.

    It's like arguing that a Kia is better than a Mercedes because it has more spark plugs.

    Once iPhone gets the larger screen, what will Samsung have to woo high-end buyers then?

    i've been with iOS since iPhone1.

    I will admit that I am desperatly waiting for the bigger screen so I can upgrade from iPhone5 16GB to iPhone6 64GB. I will admit I'm frustrated it took so long.

    iPhone4 should have been a 4" screen and iPhone 5 should have been a 4.5" or 4.7".

    Thing is, the software and apps on iOS make me want to stay with Apple. I don't want Android. I don't like Android. I don't like or want a Samsung phone. I could easily, EASILY buy one if I did.

  • Report this Comment On May 11, 2014, at 9:40 PM, sqwerb wrote:

    I agree with webguy76!

    People blindly follow Apple.

    Apple has become exactly what they were fighting against when they launched their company and their first commercial years ago when they smashed the screen of world domination controlled by Microsoft and Windows.

    My first smart phone was an iPhone 3gs. I loved this phone for 2 years but I longed for a larger screen. I do disagree about the HTC One X though and after the 3rd replacement I switched to Samsung and haven't had any problems.

    When I moved to Android I was blown away by the customization and quality of the camera!

    The Android system can do what an iPhone can and so much more! The only reason that I have a case on my phone is so I can have a kickstand for using my now S4 for so much more than just a phone.

  • Report this Comment On May 11, 2014, at 9:55 PM, sqwerb wrote:

    normgarry, just another Apple robot. The Android system is far superior than iPhone. You just mentioned some of the pluses of Samsung. Sounds pretty good to me! It has so much more but most iPhone users don't want to do anything with their phones, I don't know, maybe they're afraid of change. I wanted change and my Galaxy S4 is incredibly easy to use and has worked far better than my previous iPhone and guess what, no iTunes which I absolutely hated (it's not user friendly and Apple hasn't done anything to improve it!)

  • Report this Comment On May 11, 2014, at 9:56 PM, btc909 wrote:

    If only a no-name manufacture would release a phone that works with Verizon 4G LTE network I wouldn't know the difference from a Galaxy S5 vs. a brand J phone with similar specs and avoid the 2 year contract lock.

  • Report this Comment On May 11, 2014, at 11:10 PM, Sassyalways wrote:

    Ya apple robots will always have the same old ugly phones. Of course now they will have a big screen soon just because all of us android users have been enjoying them for years. I don't like all the hype and usually move the other way. It is fun to be a rebel. My so called plastic samsung has made it through so many drops and survived. Now my apple friends have shattered screens over and over with simple drops out of their pockets. Love my phone.

  • Report this Comment On May 12, 2014, at 1:35 AM, eldernorm wrote:

    WE all want cheap, cause we are cheap.

    We all want specs and gadgets cause they are cool.

    We all are stupid and go with the marketing... and buy Apple.... even though Samsung spends 2-4 times the money on advertising.

    We all want to buy a new phone every 6 months with a different OS cause we love the new and different.

    Market share will win over everything... cause it worked so well for Dell (who just sold the company and gave the money back to the shareholders).

    Samsung has noted that it is making less in the smart phone business for the second quarter and big bloggers are saying that the Galaxy S5 is not selling well. But that will change cause samsung is focusing on market share with phones that make little profit.

    Hey guys, fantasy aside, facts seem to run the world. Apple is making 70% of the world profit on smart phones. Yep, it will die any day now.

    And people (in general and in the majority) just like a phone / computer to just work.

    Oh and a 64 bit processor and iOS are just pretend, samsung said it will have one of those soon, even though Google has said it is not going to 64 bit.

    Facts. Just the facts.

  • Report this Comment On May 12, 2014, at 3:10 AM, crash3085 wrote:

    My old Galaxy Note 2 is still the second best smartphone available. Call me when Apple or anyone else besides Samsung comes up with anything better.

  • Report this Comment On May 12, 2014, at 3:49 AM, DerekVance wrote:

    I gotta say the argument about i-phone users using a case is a poor one. The actual phone is still of better quality then Samsung. But he's the thing... There are dozens of different smart phones because different people have different taste. Some people like myself are Apple/Mac users going back to the late 1980's.

    WAY BACK when many of the most vocal users of smart phones had yet to be born. There was a distinct split in computer operating systems. There were the 286/386/486 IMB/Windows platforms... And there was Apple. They both were launching new stuff what seemed every week. Apple users who were knowledgeable about the data bases really didn't pick an odds on favorite until we noticed that Windows was using the same root command data base throughout. Even their new versions had the same root-code data base. That made them ridiculously vulnerable. Not only to being hacked, but viruses and all manner of malicious code. Whereas Mac would upgrade the entire platform with each new version. It made it 100X as difficult for hacks to write malicious code, so they didn't bother.

    What does that have to do with i-phones? simple. People who buy them are generally older, they have more resources. They are very product loyal. They don't mind paying for what they want. It doesn't make one better or the other better. It's just a matter of choice. A bought a top-o-the-line Android product and simply didn't care for it. It was a great phone, as smart and ingenious as any. But I like Apple operating systems. It's not a status thing. It isn't a competition. It's a question of "What I LIKE using and what I DON'T like"... I'm happy there is so much diversity in phones, But I honestly don't understand the rivalry among users.. It MUST be that whole "Hip-Hop mine is more bling then yours" or something..? Hell, I dunno... I just believe you should use what you like and what you can afford. Buying a damned cellphone should NOT keep food off your table... That's all I got to say...

  • Report this Comment On May 12, 2014, at 5:32 AM, Interventizio wrote:

    Plastic is the material of choice for a portable device such as a smartphone. Metal makes little sense, which costs too much though.

  • Report this Comment On May 12, 2014, at 5:52 AM, iSheep101 wrote:

    @normgary You just perfectly exhibited why iSheep are so stupid and why everyone else laughs at them. iSheep constantly blame Samsung for copying when in fact Apple has been sued and lost hundreds of millions of dollars in patent infringement over the last 10 years. Then, when Samsung DOES NOT copy Apple but produces great features like a rear camera, bigger screen size, and sd card you act like it is no big deal.

    You also prove that iSheep are more stupid than everyone else with the same "easy to use" OS. Well sorry, most smart people would like to customize their smartphones instead of just having Apple say what we can and can't do. We are smart enough to figure out and know how to go in and customize the phone and not get frustrated because it is so hard and confusing. for a child maybe simple and easy to use is great.

    I absolutely laugh at references of the iPhone being a Mercedes as well. That is so comical but keep repeating it all you iSheep, remember as long as you believe it to be true it is not a lie.

    And I am glad you admit you don't want a baby phone anymore because alot of iSheep are like the fable the fox and the grapes. They swear up and down they don't want a bigger screen but watch them line up for the iPhone 6, like they have done for every other iPhone launch like morons, to perceive themselves as being "cool" when in fact the newest phone is not that much different than the previous phone.

    And as far as affording anything, no I am not poor and jealous of iPhone users. I drive a BMW and own my house outright and do quite well in life to afford ANY phone including an iPhone but choose not to buy one because I don't consider it the best smartphone out there. Never have and never will.

  • Report this Comment On May 12, 2014, at 7:35 AM, sternrulez wrote:

    The problem isn't an issue of plastic or anything else like that...the problem lies in an article I read several months ago about the death of the smartphone: innovation. There's only so much that you can add to a phone save screen size, storage capacity, processor speed and battery life...and even those have an impact on each other (a larger screen naturally leads to shorter battery life). Even as far as screen size goes, once you start approaching a small tablet size screen (cough...Galaxy Mega and Note), there comes a point where they become uncomfortable to hold and/or store in a pocket.

    Apple has long since stopped being innovative, but yet they still enjoy high sales because of their 'isheep' who absolutely MUST have the newest product at all times, despite the dismal failure of their mapping software, etc. I owned a 3G many years ago - actually 4 of them by the time my VERY long 2-year contract was up before I could get a REAL phone - they constantly froze on me, and the lack of customization was pitiful. I would never consider getting ANYTHING 'i' again, even if they paid ME to have's just not worth the hassle. Though this article makes a somewhat valid point re: sales figures, you must remember that Apple is a proprietary can't walk into a Best Buy and pick up an HTC or Samsung with iOS installed. When you combine the sales figures of ALL the Android OS developers, it's clear that Android outsells Apple any day of the week.

    In closing, what needs to be done is work on the above items I mentioned and not just adding a number to the end of a "flagship phone". I currently own an S4 and would really like to save some $$ the next go-around, but the problem with low-end phones is inherently low-end specs. Nokia put out a fantastic flip phone many many years ago (I believe it was the 6230) that I still have around here somewhere. If I were to charge it, I have no doubt that it would still fire up just fine for me, but I'm actively avoiding their low-end model only because of the long-since obsolete specs. I don't want to have to wait for a minute or so for an app to start, and with 512MB of RAM and a sub-1Ghz processor that's exactly what would happen...think of it as trying to play Crysis 3 on a Pentium's just not going to!

  • Report this Comment On May 12, 2014, at 7:53 AM, Jdzspace wrote:

    I feel like this is a debate that has been over for at least 2 years. Does anyone honest to god believe that Apple makes better phones than HTC, Samsung or Motorola?

    Why is that? No removable batter, no expandable memory, screens only fit for a teenage girl?

    Why is this something people keep saying is better than bigger, faster, stronger phones out there?

    As someone in the industry who sees people turn away from Apple every single day, these conversations just don't make sense to me.

    I understand personal preference, I understand if the apps you use for work or play just aren't on any other OS.

    But to say that Apple is in any way better, is ridiculous on it's face. you realize that 75% of the worlds phones are Android right? That in the last quarter of last year the Galaxy Note 3 sold about 3/4 of the amount the Iphone 5s did up to that point?

    It isn't this dominant thing some seem to think it is, its not this super high end thing either. They are no more expensive than any other phone on the high end of the market.They just offer so much less than other phones.

    Say you love it because it has apps you can't get anywhere else (lord knows they are out there), say you are an isheep and that's all you have ever known in a smartphone, say it's just your thing, whatever.

    But don't say that it's better, because it's not. Don't say others don't sell well, because that is a lie.

    Just stop deluding yourselves and touting that Apple is something that it's not. It's ok, the ghost of Steve Jobs isn't going to come get you if you admit that the phones have become less than other phones.

    that is the truth of the matter.

  • Report this Comment On May 12, 2014, at 8:59 AM, jonfromny wrote:

    So in other words, the whole "problem" concerns with the Galaxy S5 is nothing more than having to deal with Apple's fanboys. Yeah, I think Samsung can handle them.

  • Report this Comment On May 13, 2014, at 12:27 PM, NCRick70 wrote:

    I won't bother with analogies or "fanboy"ism as that has already been done by others here as well in comments sections of other sites on this topic.

    I currently own and regularly use both an iPhone 5 (initial incarnation without any suffix) and a Galaxy Note 3 (which in my opinion is really Samsung's flagship model). Both are great devices and perform well. My Note 3 is my primary phone and my iPhone 5 is my backup when I want to carry something a little more portable and easily pocketable. I should add that I now exclusively use a MacBook Air as my primary, and only, computer and I use an iPad mini LTE version as my primary tablet so that does keep me tied a bit to Apple products.

    Now after full disclosure I will comment on why Samsung seems to be in a rut with their Galaxy S* line. I have had a business Premier account with AT&T since 2005 and have had as many as several lines on my account and I frequently update models. I have gotten to know a few of the reps at my local store pretty well and they keep me informed on what the latest models and features are currently or soon to be available. I looked at the S5 as a possible replacement for my iPhone 5 since it offers a bigger screen, similar performance and I could sync data between the S5 and my Note 3. They also had some S4 leftovers and I asked what's really so much better about the S5. Between a couple reps the best they really could come up with was the heart rate sensor, fingerprint sensor and a little bit faster processor. I was just not that excited by it. I don't use my phone as a primary fitness monitoring device nor do I use it for graphic intensive gaming. I held out on the S4 after haying an S3 because I didn't think that was much of an update either while on the other hand the Note 3 was impressive. Now that the Note 3 is out I think they will see sluggish sales with the Note 4 that will inevitably come out.

    Some have said that technology has peaked. I don't think that is necessarily true. I think the technology offered in current devices is adequate for most consumers wants and needs. Other than for early adopters who need to have the "latest and greatest" (which to some extent I am) there just doesn't seem to be enough compelling features/benefits for the average consumer to upgrade now if they already have a model released in the past couple years. Maybe the one biggest reason currently would be to change OS platforms to keep your phone synergistically compatible with your tablet and/or computer.

    I would however warn the average consumer to not get married to or too heavily invested into one particular ecosystem. Having all devices from Apple, Samsung or Google can offer some conveniences but when it's time to replace one of your devices it very well could end up that a competitor's brand may be the best choice for your needs at that time. I personally think they all make good devices but which one is the best fit for someone depends on their needs and usage habits.

    Best advice: Don't upgrade because you can. Do it if and when you need to because you need to do so. Using phones as an example, if you are still using a 3G model then it's probably time to upgrade. If your phone OS version is no longer supported then that's probably another reason to upgrade since app updates probably will not work if your OS cannot be updated. Otherwise if everything is in good working order then keep using what you have. Some wireless companies now offer discounts on monthly service if you are using a phone "out of contract" so you may just save a little money too.

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Ashraf Eassa

Ashraf Eassa is a technology specialist with The Motley Fool. He writes mostly about technology stocks, but is especially interested in anything related to chips -- the semiconductor kind, that is. Follow him on Twitter:

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