Samsung (NASDAQOTH:SSNLF) announced Friday that it would launch two new smartphones: the Galaxy A3 and the Galaxy A5. The Verge quoted the company as saying that these two phones are the "slimmest smartphones it's ever made," at 6.9 millimeters and 6.7 millimeters thick, respectively.
Additionally, Samsung is reportedly equipping both with a "quad core 1.2GHz processor" (which I would guess is a Qualcomm (NASDAQ:QCOM) Snapdragon 400), and The Verge reported that both phones have a "plethora of selfie modes." The A5 reportedly has a 13-megapixel rear-facing camera, while the A3 has an eight-megapixel camera.
Finally, The Verge said no pricing information has yet been released, but that the phones will be available in China next month.
Samsung's mobile division profits are plunging
For those of you following Samsung's financials, the company reported that its mobile division revenue dropped from 35.66 trillion Korean won ($33.2 billion) to just 23.52 trillion Korean won ($21.9 billion) during the third quarter. Operating profit plunged from 6.70 trillion Korean won ($6.23 billion) to 1.75 trillion Korean won ($1.63 billion).
Samsung attributed this financial performance to average selling price reductions on older phones and a lower proportion of its smartphone shipments coming from the high end of the market. While the company said it expects smartphone shipments to "increase under year-end seasonality," it acknowledged that competitive pressures could further erode the average selling price.
In other words, a well-understood dynamic is continuing to play out: Samsung's enormous mobile profits are being squeezed by Apple at the high end and a number of vendors willing to accept much lower margins at the low end and midrange.
Will new phones help?
Samsung seems to think that its problem is on the product side of things; that if it can just release "differentiated" devices, customers will come back and pay a premium for its devices, and its smartphone profit engine will hum along.
While I don't have a crystal ball, I don't think "new products" will help Samsung.
At the high end of the Android market, Samsung already delivers products that contain top of the line specifications and high-quality components, but do customers care? It doesn't seem so. Apple still managed to do very well last fiscal year with its small-screened iPhone 5s and, if its forward guidance is any indication, it's going to grab even more market share now that it has larger-screened iPhones.
At the low end and the midrange, there isn't much room for differentiation. Smartphone vendors generally have access to the same internal components and displays from the same vendors. On the software front, Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android operating system is widely available and has a rich application ecosystem, lowering the barrier to entry for building a smartphone.
Sure, Samsung can add more metal to its phones, continue to customize the Android user interface, and include other features here and there. However, it's not clear that Samsung can add enough value with software customization to command a premium, particularly given how good vanilla Android is.
Samsung's not hurting for good products
Samsung appears to be fighting a battle that cannot be won. The low end and midrange of the Android smartphone market are quickly becoming commoditized, which limits the profit that can be extracted. The high end of the smartphone market still seems to be quite profitable, but Apple has proved adept at grabbing and locking up more of the industry's profits over time.
The Galaxy A looks like a solid Android phone, but Samsung has always put out solid Android phones. However, with iOS-based devices doing well at the high end, and with Samsung's direct rivals in the Android market producing solid Android phones as well, it's unclear if new devices will solve Samsung's fundamental problem.
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), 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.