As Apple (AAPL 2.15%) makes its triumphant return with the iPhone 6 launch, many of its competitors -- including nemesis Samsung (NASDAQOTH: SSNLF) -- are struggling with waning demand and crumbling margins.
Those problems are commonly attributed to sluggish demand in developed markets and aggressive competition from cheaper Chinese companies, but many investors don't notice another huge problem Samsung, Sony (SNE +0.19%), and HTC (NASDAQOTH: HTCCY) all face: in-house fragmentation. These three companies have launched so many versions of their respective Galaxy, Xperia, and One phones that it becomes difficult to track them all.
For example, Samsung currently sells seven versions of its Galaxy S5, five variants of the Galaxy Alpha, two iterations of its Galaxy Note 4, and countless lower-end devices for emerging markets. Meanwhile, Sony currently offers 26 different Xperia smartphones, and HTC sells eight One and six Desire models.
Sony's strategy: confusing names with unhelpful descriptions. Source: Sony.
Apple, by comparison, only sells two newer devices, the iPhone 6 and 6 Plus, and two older ones, the iPhone 5s and 5c. Xiaomi, which recently dethroned Samsung as China's top smartphone maker, also only sells four: the Mi 3, Mi 4, Redmi 1S, and Redmi Note.
Is it time for Samsung, Sony, and HTC to finally clean house, or do they really need to design phones aimed at every kind of user?
The business of launching too many phones
Selling too many phones at once also undermines the premium appeal that Samsung, Sony, and HTC all offered in the past with their Galaxy, Xperia, and One brands.
Today, Samsung sells low-end "Galaxy" phones, such as the Galaxy S Duos 3, for as low as $120 in India. But at the same time, buyers in China are shunning its Note 4 in favor of the iPhone 6 Plus. The reason is obvious: Affluent Chinese consumers value status symbols, and a phone that shares the same branding as a bottom-end device just can't measure up to an iPhone.
There is also no evidence that launching more phones leads to market share growth. Apple, for example, controls 12% of the global smartphone market by only launching two phones per year. Samsung controls 25% of the market, but its share is heavily fragmented between its huge lineup of phones. Sony controls between 2% and 5% of the market, according to Fitch Ratings, while Gartner pegs HTC's share at about 2.5%.
Flooding the market with a bunch of phones is equivalent to throwing handfuls of darts at a dartboard while blindfolded -- a few will stick, but chances are none will hit the bull's-eye.
Samsung's Galaxy S Duos 3. Source: Samsung.
Launching too many phones also confuses users. Most consumers probably can't tell the difference between Sony's Xperia Z, M, C, SP, and ZL phones, which begs the question, why not launch a single smartphone worldwide with clearly defined features?
Last but not least, releasing too many phones increases the inventory of unsold phones. During its dismal second-quarter earnings report, Samsung blamed the 30% decline in operating profit at its mobile unit on inventory mismanagement in its low-end and midrange devices. By comparison, Xiaomi manufactures and sells a limited quantity of phones to inflate demand while keeping inventory levels low.
Is there a smarter way to sell smartphones?
Instead of using a scattergun strategy to sell smartphones, Samsung, Sony, and HTC should slim down their product lines.
Following Xiaomi's easy to understand model for premium, low-end, and phablet devices would be a good start, and could result in reduced marketing costs. Samsung and HTC respectively spend roughly 5% and 10% of revenue on marketing, while Xiaomi gets by on about 1%. Another simple strategy would be to offer two or three smartphone models with tiered prices for different quantities of internal storage and RAM.
With less money tied down on developing and marketing different phones, these companies could lower the prices of their mid- to high-range smartphones to better compete against cheaper Chinese rivals.
Apple's approach
When the iPhone arrived in 2007, Apple showed the world that a single device with a catchy name could repeatedly outsell dozens of awkwardly named devices. Yet Samsung, Sony, HTC, and other competitors still insist on fragmenting their own product lines with similar-looking devices with similar-sounding names.
Don't get me wrong -- cleaning house and launching well-defined flagship devices won't solve these companies' problems overnight. However, these moves could prevent devices from confusing customers, undermining its premium brands, and cannibalizing one another.
