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Smartphone demand, competition behind another Samsung miss

Opening Day Of Mobile World Congress 2015Opening Day Of Mobile World Congress 2015
A Samsung Galaxy S6 Edge smartphone sits on display in the Samsung Electronics Co. pavilion at the Mobile World Congress in Barcelona, Spain, on Monday, March 2, 2015. Photograph by Simon Dawson — Bloomberg via Getty Images

In March of this year, Samsung Electronics launched its latest smartphone series, the Galaxy S6 and S6 Edge.

Gone was the cheap-feeling plastic body, which was replaced with a sleek and sturdy frame. A refined, more reliable fingerprint sensor also replaced the finicky scanner found under the home button on prior models. Meanwhile, the phone’s interface customization Samsung was known—and loathed—for was reduced and the replaceable battery found in older phones officially dropped.

In other words, both devices were more like Apple’s iPhone 6 than previous smartphone generations. Product reviews were strong, with yours truly even calling the device “almost perfect,” save for the battery life. Samsung (SSNLF) appeared, for all intents and purposes, to have a hit smartphone on its hands.

Then on Tuesday the tech company posted its estimated second quarter earnings for 2015—a time which coincided with the S6 launch—that showed a seventh straight profit drop, and an overall decline in sales.

While the report didn’t breakdown earnings by each business unit, most analysts attributed the loss to its struggling smartphone division.

Underestimating sales

Greg Roh, an analyst for HMC Investment Securities Co. blamed part of the company’s weak performance on sales. He told The Washington Post the “S6 didn’t sell as well as the market had hoped for, partly because of continued outperforming of iPhones combined with the supply constraint” for the Galaxy S6 Edge variant.

Samsung is also alleged to have had issues keeping up with demand for the S6 Edge and underestimated the phone’s popularity, which proved to be a costly mistake. The Wall Street Journal cited sources who claimed Samsung expected to sell only one S6 Edge device for every four S6 units, when in reality the demand was “likely closer to even.”

Competition

An increasingly crowded smartphone market also wreaked havoc on the company’s profits, said analysts.

The South Korean company faces stiff competition from Apple on the high-end of the smartphone market thanks to the iPhone 6 and 6 Plus, while simultaneously facing pressure on the lower-end from makers Xiaomi and Huawei in China.

A May report from International Data Corporation (IDC) revealed Samsung’s share of the Chinese market share dropped over 50% in the first quarter for 2015. Meanwhile, Apple leads in market share gains, with Xiaomi and Huawei not far behind. All three of which were ahead of Samsung.

Samsung recently claimed it expected to meet demand for its latest devices by the end of June, meaning it could possibly make up some ground in the third quarter.

Despite the company’s goals, Samsung’s future is far from certain since more smartphone competition is right around the corner. Apple (AAPL) traditionally unveils the latest version of its iPhone lineup, which appears to be the case again this year, in September. The much-buzzed about iPhone 6S is expected to include a new feature called Force Touch technology, while maintaining the same look and size of the current iPhone 6.

For its part, Samsung won’t sit idle as its competitors continue to excel. The company typically releases an updated version of its popular Note smartphone in the fall, with an official announcement expected at IFA in early September.