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Is Samsung Struggling to Compete with Apple in Premium Tablets?

Samsung (NASDAQOTH: SSNLF  ) is the world's leading vendor of smartphones by unit shipments. Fueled by the success of its Galaxy line of smartphones, coupled with the company's unparalleled scale and vertical integration, it has -- together with Apple (NASDAQ: AAPL  ) -- commanded the lion's share of the smartphone market's profits.

As Samsung attempts to fuel its next leg of growth by owning the tablet market, its recent moves indicate that it is finding the higher end, higher margin portion of that market -- which is still dominated by Apple -- fairly difficult to penetrate.

The Galaxy Tab/Note debacle
Back in October 2013, Samsung launched the Galaxy Note 10.1 2014 edition. Shortly after that, at the Consumer Electronics Show in Las Vegas in early January, Samsung launched the Galaxy Tab Pro line of tablets. This included the Galaxy Tab Pro 8.4, Galaxy Tab Pro 10.1, and the Galaxy Tab Pro 12.2. These were fine Android tablets that were well-reviewed, although a bit on the expensive side.

Just six months later, Samsung went ahead and pushed the Galaxy Note and Galaxy Tab Pro lines down the stack in favor of the Galaxy Tab S. This new line of tablets offered tablets with similar processors, more memory, thinner chassis, and better displays than their corresponding Galaxy Tab Pro/Note counterparts. All, of course, for the same price than the preceding tablet lines launched at CES.

While Samsung (and perhaps industry watchers) will call this simply innovating at a rapid rate, such moves tend to create ill-will on the part of consumers and wouldn't be done unless Samsung had a really good business reason to do so. It's not hard to imagine the poor buyer of a Galaxy Tab Pro 10.1 for $499 in May feeling pretty miffed that waiting a month would have gotten her/him the same tablet cheaper or a better tablet for the same price.

Why is Samsung rapidly moving through tablets?
If Samsung's Galaxy Tab Pro line were selling well at the products' respective launch prices, then releasing new tablets just six months later would probably be a bad idea since Samsung could maximize its returns by allowing that product family to run its course. This is what Apple does, and this is why it is so incredibly tight-lipped about next generation products.

Samsung isn't stupid and wouldn't launch new products so quickly unless the current lineup wasn't selling all that well at the current prices.

The good news, though, is that the Galaxy Tab Pro line gets a nice haircut, making them much more attractive at their current price points ($399 for the 10.1-inch, $329 for the 8.4-inch). Further, since the Galaxy Tab S products are more attractive than their predecessors were at those higher price points, Samsung may actually capture a bit more of the high-end tablet market before Apple launches its next generation iPads.

Foolish bottom line
The premium tablet market is a difficult one, particularly as lower-cost tablets tend to be much more accessible. Remember, in the smartphone market, carrier subsidies make buying a cream of the crop handset palatable, but in the tablet market, dropping $499 and up unsubsidized is a pretty big purchase for the vast majority of the population.

The low end of the tablet market is cutthroat and has quickly become commodity, so while Samsung's brand and marketing helps it there, it's no surprise that it wants in on as much of the high end as possible.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 25, 2014, at 12:13 PM, Oldfool103 wrote:

    Samsung, along with Apple, commands the lion's share of the profits in smartphones? I read that to suggest that Samsung has taken the lead in those profits, with Apple somewhere behind. Funny, with the amount I read about Apple, I missed that moment.

    I do seriously wonder about the profitability of the Galaxy and Tab lines. I know Samsung would never report their sales; but given the frequency of their BOGO offers--buy a Galaxy and and pick up a second, or a Tab, for free--it would be interesting to know what this does to their margins and ASP of the high end phone, since that is the only market in which they compete with Apple. I have a shiny dime for the first analyst/blogger who can come up with those figures. (Please note that the "S" in ASP refers to "Selling," not "Shipping.") Don't forget to include your address so that I can send you the dime.


  • Report this Comment On June 25, 2014, at 1:36 PM, never2dull4u wrote:

    Samsung gives their crappola away for FREE and call it market share win. They get to record the revenues while writing off the expenses under sales and marketing.

    This is how they play their games. Nothing new.

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Leaked: Apple's Next Smart Device
(Warning, it may shock you)
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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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