Samsung offers freebies with Galaxy S5 to fend off rivals

Samsung Electronics, facing more competition from Apple and Xiaomi, is cranking up incentives for its Galaxy S5 to as much as US$600 in freebies to defend its place as the world's largest smartphone maker.

Samsung is fighting to make its phones stand out in the market against new iPhones and up-and-comers such as China's Xiaomi and Coolpad. The strategy may force rivals to lift incentives or lower prices, meaning a potential profit squeeze throughout an industry that has seen the fall of once-dominant producers Motorola and Nokia. Samsung's operating profit has fallen for two consecutive quarters.

"Samsung must do whatever it takes to maintain its global consumer electronics leadership," said Neil Mawston, director of global wireless practice for researcher Strategy Analytics. "Previous failures like Motorola have shown in the past that once you lose your grip on top spot, it is a very long and painful process to get it back."

The S5 enters a smartphone market where global growth is expected to slow to 6.2 per cent in 2018 from 19 per cent this year, research firm IDC said in February.

Samsung expects S5 sales to reach 10 million units within 25 days based on pre-orders from global wireless operators, the Seoul Economic Daily reported.

While Samsung sold about one of every three smartphones globally last year, Chinese competitors Xiaomi, Coolpad, Huawei and Lenovo gained traction and stalled some of Samsung's growth. Xiaomi expects its sales to grow fivefold to 100 million phones next year.

Samsung, Asia's biggest technology company, rode almost a tenfold increase in shipments from 2010 to 2012 to overtake Apple as the world's biggest smartphone vendor. Growth slowed to 44 per cent last year as it sold fewer S4 smartphones than analysts expected.

This week, the company posted a 4.3 per cent drop in earnings, with operating income falling to 8.4 trillion won (HK$62.6 billion) in the three months ended March, as stalling demand lowers prices for Galaxy devices and components.

Samsung shipped 63.5 million units of the S4 up to February, according to analyst estimates. That compares with 65.6 million for the 4.8-inch S3.

Samsung is finding it harder to separate from the rest of the pack as hardware innovations become harder to include and the high-end market reaches saturation, said Warren Lau, an analyst at Kim Eng Securities in Hong Kong.

Technical specifications such as near-field communications, high definition screens and faster processors were once only offered by luxury makers. Now producers including Xiaomi and Lenovo pack them into smartphones costing as little as US$100.

While the 5-inch Galaxy S4 had new software such as eye scrolling and gesture recognition, it failed to match sales of the predecessor.

"All of the vendors who focus on the high-end segment have the same reason to worry about the stagnant outlook," Lau said. "The pace of innovation has slowed down significantly."