Shares of Samsung (OTC:SSNLF) have lost around one-third of their value in the last 12 months. The South Korean tech giant remains the world's largest smartphone manufacturer, but its mobile business -- which generates the bulk of its revenue and profits -- has gone into a tailspin. Earlier this month, Samsung warned that its third quarter operating profits would be down a massive 60% from the same quarter last year.
Samsung sells a wide variety of smartphones at nearly every price point, but its more expensive flagships face fewer competitors and offer better margins. Going into the holiday season, the company will look to two new flagships -- the Galaxy Note 4 and the Galaxy Edge -- to turn its mobile business around.
Apple goes after Samsung's Note
Although Samsung wasn't the first manufacturer to release a larger smartphone, it was the first to take the concept mainstream. With each iteration of its Galaxy Note, Samsung offered steady improvements and enjoyed steadily improving sales -- Samsung's original Galaxy Note took nearly a year to ship 10 million units; the Note III accomplished the same feat in just 60 days. If the Note IV continues the trend, Samsung could soon announce a record launch for its flagship phablet.
Or maybe not. Samsung's prior Galaxy Notes were not exempt from competition, buts its competitors were few and far between -- if a consumer wanted a big, high-end smartphone they pretty much had no choice but to go with Samsung.
That's no longer the case -- Apple's (NASDAQ:AAPL) iPhone 6 Plus is nearly as big as Samsung's Galaxy Note IV, and priced almost identically. Apple announced a record debut weekend for the iPhone 6 and iPhone 6 Plus last month, and though it was initially plagued with allegations of bending, an order placed today for the iPhone 6 Plus could take up to a month to fulfill.
Unfortunately, Apple has neglected to offer much in the way of a breakdown between iPhone 6 and iPhone 6 Plus sales -- when asked about it on Apple's recent earnings call, CEO Tim Cook neglected to give an answer, saying only that his company was selling everything it could make, and that demand for the new phones was outstanding.
Only time will tell if the existence of Apple's iPhone 6 Plus will weigh on Samsung's Galaxy Note IV, but it seems reasonable to expect that it will. Ahead of the iPhone 6 Plus' debut, Samsung attacked the phone with barrage of ads intended to point out Apple's sluggishness -- clearly, Samsung executives feared the possibility.
Samsung's Note may even be losing ground in its home market of South Korea (long a Samsung stronghold): According to The Wall Street Journal, the iPhone 6 has far outpaced the Galaxy Note IV in pre-orders on South Korea's largest carriers.
Something radically new
The Galaxy Note Edge is similar to the Note 4, but offers something different -- a curved screen. There have been curved smartphones in the past, including Samsung's own Galaxy Round, but nothing like the Note Edge, which offers a second, secondary display on one side of the phone.
Like the Galaxy Note in its early days, the Galaxy Note Edge gives Samsung a phone its competitors can't match -- if a curved screen is what they want, consumers literally have no choice but to go with Samsung's latest phone.
But beyond the obvious question -- does anyone actually want a curved screen? -- is supply. Samsung has neglected to offer many details of the Note Edge's availability, describing it as a "limited-edition concept." In other words, even if consumers want the handset, they may have a hard time getting it.
Samsung is cheap for a reason
Samsung's stock is incredibly cheap based on nearly every valuation metric: it currently trades with a price-to-earnings ratio near 5.5 -- almost unbelievable for a company with a market cap of more than $150 billion. But it's cheap for a reason: Samsung appears to be following in the footsteps of the many famous, has-been handset makers that came before it.
Given its large semiconductor and display business, it's highly unlikely that Samsung will get broken up and sold for parts (like Nokia and Motorola), but given that much of its recent sales growth has come from its mobile unit, the worst may not be over.