Can the Samsung Galaxy Note 4 Succeed Where the Galaxy S5 Failed?

Samsung's problem may go beyond specifications at this point.

Aug 3, 2014 at 11:00AM

Samsung

The Samsung Galaxy S5. Source: Samsung. 

Earlier this year, the buzz surrounding the then-unreleased Samsung (NASDAQOTH:SSNLF) Galaxy S5 seemed almost overwhelming. It seemed that a day wouldn't go by without the rumor mill churning out yet more alleged details about this or that new whiz-bang feature – some of which ultimately materialized, and others proved bogus. 

Indeed, the Galaxy S5 did bring several "new" features including a fingerprint scanner, a slightly larger screen, a waterproof body, and – as is customary – faster internals. It was a worthy upgrade to the Galaxy S4, and initial sales numbers even suggested that it was selling better than the S4 did at the same point in its ramp, though aggressive pricing and broader launch availability may have been instrumental to that. 

No staying power for the Galaxy S5
Despite an encouraging early ramp, the Galaxy S5 ultimately didn't have the staying power that Samsung had hoped. Quite the contrary as its smartphone sales and operating profits slumped significantly year over year during the company's most recent quarter, proving a disappointment to Samsung and its investors alike. 

Moving along, with the Galaxy S5 now looking like yesterday's news, Samsung is eyeing its its next "next big thing" -- the Galaxy Note 4. 

What should we expect from the Galaxy Note 4?
On its earnings call, Samsung's management hinted that its upcoming Galaxy Note 4 would be a compelling upgrade from its prior generation handsets, but offered little else in the way of specifics. 

Fortunately, some educated guesses coupled with a few leaks help paint a much clearer picture of what to expect. 

For starters, Samsung announced that it would be launching next generation 20-nanometer applications processors, which should offer performance and power benefits over the 28-nanometer chips commonly found in mobile devices today. It wouldn't be too much of a stretch to see a fresh batch of Samsung-designed processors (under the Exynos brand) power at least some variants of the Galaxy Note 4 (Qualcomm typically secures the applications processor spots in the North American variants of Samsung's flagships).

Furthermore, these processors are likely to be 64-bit capable. 

Additionally, Synaptics – the supplier of the fingerprint scanner found in Samsung's Galaxy S5 and Tab S lineup – indicated at a recent investor event that it would be shipping fingerprint scanners that work with a "touch" (like Touch ID found on the Apple (NASDAQ:AAPL) iPhone 5s) rather than the swipe mechanic that the current Synaptics scanners require. These new scanners could find a home in the next generation Galaxy Note 4.

Finally, Samsung made sure to point out in its earnings release that it will begin mass production of both flexible as well ultra-high resolution OLED displays, signaling that the Note 4 – like the premium Galaxy S5 Broadband LTE-Advanced phone launched in South Korea – is likely to sport a 2560x1440 resolution display.

Samsung may have a hardware edge on Apple, but it may not be enough
The Galaxy S5 wasn't the iPhone 5s killer that Samsung may have expected it to be despite a compelling laundry list of features. Samsung's problem is that with the Galaxy Note 4 it will likely use the same tried-and-true playbook to fight the upcoming iPhone 6 -- competing on hardware specifications. 

The Note 4 will almost assuredly look better than the iPhone 6 will on paper – Samsung usually crams its smartphones with many of the latest-and-greatest features while Apple tends to hang back on doing so for the sake of margins. It's important to note, though, that the Galaxy S5 also had significantly better specifications on paper than the iPhone 5s did (a higher resolution display, larger screen, higher resolution camera, and faster Wi-Fi and cellular connectivity), yet this made little difference -- the iPhone 5s still won out. 

This problem may simply be fundamental
The problem with Samsung's strategy is that, at the end of the day, the race to pack in more expensive components is great for the component suppliers, but it pressures margins – particularly in a flat-to-down average selling price environment for high end phones. Apple's business is so unique precisely because it can "get away" with using less expensive components and still produce a product that many find to be superior to the alternatives.

A big part of that comes from Apple understanding that at the end of the day, hardware is there to enable software – not the other way around. Other factors include arguably unmatched brand cachet, customer service, and retail presence.

All of these combined is what Samsung is up against, and with Apple seemingly remedying the one major flaw in its product lineup – the lack of larger screen iPhones – the flashiest whiz-bang hardware in the world may not be enough to save the Galaxy Note 4 from the same fate that befell the Galaxy S5. 

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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