Samsung overtakes Nokia in European featurephones

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Samsung overtakes Nokia in European featurephones

But small smartphone share will depress handset margins in Q2

By CAROLINE GABRIEL

Published: 7 July, 2010

READ MORE: Financial | Samsung | Handset | Android

Samsung seems to have overtaken Nokia in a market where many would have thought the Finn to be invincible - the European featurephone sector. This illustrates how the Korean vendor's economies of scale are starting to challenge Nokia's, though its smartphone share remains significantly behind. Its new Android oriented Galaxy S range is designed to reverse that pattern, though it will take another quarter to filter through to financial results. Though Samsung has forecast record Q2 operating profit, its handset margins will be a weak spot, reinforcing the urgent need for a strong smartphone strategy.

According to new figures from researchers at IDC, Samsung sold 12.2m featurephones in western Europe in the first quarter, while Nokia sold 9.1m such units. Nokia retained its lead in open OS smartphones in its home territory though, selling 4.9m devices, ahead of Apple's 3m, RIM's 2.4m and HTC's 900,000.

Samsung's share of the smartphone market was only about 5% in Q1 but it aims to increase this to almost 15% by year end, largely on the back of its Galaxy S multi-model Android range, plus other phones running Windows Mobile, Symbian, LiMO and its own bada. The Galaxy S has shipped in Korea, and sold 200,000 units in its first week. By comparison, the iPhone has sold 800,000 units in that country in seven months, though Korea is hardly a typical territory. More important to Samsung's challenge to Apple will be strong European performance, and success in the US, where it has created a different Galaxy S variant for each national cellco.

The company this week forecast record Q2 operating profit of around KRW5 trillion ($4bn), which would be up 87% year-on-year. Sales should grow by about 14% to KRW37 trillion on a consolidated basis, and it will report later in the month.. More than half of the operating profit is expected to come from the flourishing chip business, which is seeing strong recovery after the downturn of early 2009.

However, as reported in the London Financial Times, analysts expect margins at the handset unit to have suffered because of weakness in smartphones and rising price pressure in featurephones.

"Smartphones remain Samsung's biggest weakness," said Kim Yoo-jin, an analyst at Taurus Investment & Securities. "There is no problem with hardware but the key issue will be how far Samsung can catch up in terms of software." The vendor is not only embracing Android aggressively, but seeking to tap into the pool of developers for its high end proprietary handsets - particularly popular in Asia - by opening up that platform in the form of bada, which supports third party programs.