Samsung vows to ‘fundamentally reform’ smartphones to stave off Xiaomi threat

Samsung is promising to “fundamentally reform” its entire smartphone business after profits on its devices took a nosedive to the lowest level in the last three years.

Read more: Xiaomi threatens Samsung and Apple as third largest smartphone vendor

The South Korean firm that leads the worldwide smartphone market in terms of units shipped is planning to act quickly on the changing market conditions and an executive admitted for the first time that Samsung has been slow to do so thus far.

“Our high-end smartphone sales result was somewhat weak,” Kim Hyun-joon, a senior executive at the IT & mobile division, told analysts on a conference call, according to FT.com. “We will fundamentally reform our product portfolio, and significantly enhance our competitiveness for each price tier.”

Kim added that the company expects the marketing spend to increase in the run-up to Christmas to combat competitor product launches and certain analysts aren’t at all surprised at the situation Samsung finds itself in.

“They’ve got an old set of products that are no longer in demand – things that are too low-spec, with smaller screens,” said Mark Newman, analyst at Bernstein Research. “They were too greedy. The Chinese ended up having better products at lower pricing.”

Samsung had earlier reported that its operating profit for Q3 2014 fell by 60 per cent year-on-year to 4.1 trillion won [£2.44 billion] and operating income from its mobile business, which accounts for 60 per cent of its entire earnings, dropped from 6.7 trillion won [£3.9 billion] last year to 1.75 trillion won [£1 billion] this year.

This was further compounded by a drop in quarterly sales of 20 per cent to 47.4 trillion won [£28 billion] and comes on the same day that Xiaomi leapt to third place in the global smartphone market.

The decision to release the Galaxy Alpha, a metal-cased version of its Galaxy S5 smartphone, was widely seen as an attempt to challenge devices produced by the likes of Apple and HTC that all use a metal frame as opposed to the polycarbonate coating it usually favours. Its high-end Galaxy S5 achieved poor traction in the smartphone market following its release earlier this year.

Read more: Samsung expects massive drop in third-quarter profits

IDC’s report on the global smartphone market also revealed that Samsung’s market share declined by 8.2 per cent this year and it was the only one of the top five to see a drop in smartphone shipments and its plans for China will do much to decide whether it can reverse this trend.