It wasn't that long ago when Samsung's (OTC:SSNLF) smartphone prospects seemed unstoppable. The company built a high-end smartphone lineup with the ubiquitous Android OS that rivaled Apple's (NASDAQ:AAPL) iPhones in both the software and hardware elements.
But Samsung's smartphone season has changed from a blissful summer to a near-dead winter. The company misjudged demand for the Galaxy S6 Edge and profits plummeted as a result. To help curb the tide, Samsung dropped the price of its flagship lineup by up to $100. Meanwhile, Apple's tightened its grip in the high-end smartphone market and Chinese vendors have taken business away from Samsung in the low-end segment.
To drag its mobile division back to brighter days, Samsung made a leadership change this week when it named D.J. Koh the new head of its mobile division. The move is more than just a restructuring around new leadership, though -- it's a calculated step toward software and services in an ever-more-crowded hardware market.
The software savior
Koh will take the mobile reins from J.K. Shin, who was in charge of Samsung's boom-and-bust mobile era of the past few years. Koh brings with him years of experience as Samsung's chief of mobile research and development, where he helped oversee the company's Samsung Pay service and its Knox enterprise security offering.
Koh's hiring is a reflection of Samsung's need to set itself apart from a plethora of Android devices flooding the low-end smartphone market, and a suffocating amount of iPhone sales in the high-end market.
While Samsung's smartphone shipments are still strong -- in the third quarter the company out-shipped Apple and Huawei combined, taking about 24% of global smartphone shipments -- it's likely of little solace to Samsung. The company used to bring in 40% of all global smartphone profits, but now scrapes by with just 14%. Meanwhile, Apple rakes in 92%.
Samsung hasn't made it through that global revenue percentage plunge unscathed. In 2013, the company's smartphone division brought in about 66% of Samsung's total revenue, but that percentage now sits at 32%.
Focusing on software and services may help to reverse this trend, but it won't come easy. Samsung now needs to set itself apart from other Android devices by adding new services like Samsung Pay, but how exactly it'll do that at this point is still unknown. It's not likely the company would make a drastic move like trading in the Android OS for its own homegrown Tizen software (at least not for its high-end Galaxy S lineup).
But even if it is able to rise above the Android masses with new software and services, it's not likely that any of those new offerings will help the company take on Apple at this point. Apple currently sets the standard for both high-end hardware and software, and does a bang-up job combining the two together. That's something Samsung will never be able to match because it doesn't have full control over Android.
Samsung's smart to reposition its focus on software and services as Android competition becomes more fierce. But if it's looking to best Apple in the software game, then Samsung's underestimating Apple's unique ability to pair its own hardware and software together.