Samsung Electronics’ Counterintuitive Move—Expanding Production of Entry-Level Galaxy A Models Accepting the Burden Despite Surging Memory Prices Focusing Production on Ultra-Low-Cost A17 and A18 Models Laying the Groundwork for Expanding Global Market Share Diversifying the Premium Phone Lineup A Volume-Driven Strategy for the Entry-Level Phone Market

Galaxy A17. [Samsung Electronics] 사진 확대 Galaxy A17. [Samsung Electronics]

When memory prices surge, the first products smartphone makers typically worry about are mid- to low-priced phones. Their low selling prices leave little room to absorb higher component costs, while raising prices could prompt consumers to switch to competing products.

Samsung Electronics, however, is moving in the opposite direction. Rather than reducing shipments of mid- to low-priced phones to protect profitability, it has chosen to maintain sales volume by putting the Samsung Galaxy A series at the forefront. In particular, it has allocated more than half of its total Samsung Galaxy A series production plan to the relatively lower-priced A17 and A18 models.

The reason Samsung is willing to bear the setback of higher memory prices to protect sales of mid- to low-priced products is market share. Chinese companies competing with Samsung in the mid- to low-priced market face the same cost increases, so analysts say the market landscape could change depending on which company can maintain sales and endure the pressure.

Chipflation Sends Entry-Level Phone Profitability Plummeting

Prices for DRAM and NAND flash are rising sharply as memory demand surges, led by artificial intelligence data centers. For smartphone makers, that means the component cost of producing each device is increasing accordingly.

Mid- to low-priced smartphones are being hit particularly hard. Premium products priced well above 1 million won have relatively more room to absorb higher component costs or adjust their prices.

By contrast, even the same increase in component prices has a greater impact on the profitability of products priced in the hundreds of thousands of won. Market research firm Counterpoint Research also analyzed that the impact of rising memory prices in the second quarter of this year was concentrated on entry-level smartphones.

Raising prices is not easy, either. The mid- to low-priced market has many price-sensitive consumers, and manufacturers must compete with Chinese products offering similar specifications.

Passing higher costs on to consumers would weaken price competitiveness, while keeping prices unchanged would force manufacturers to absorb the expense. Although Samsung Electronics produces memory itself, its smartphone business cannot avoid the cost burden caused by rising memory prices.

Even so, Samsung Electronics is concentrating production on the lower-priced products within the Samsung Galaxy A series. Its production plan for the A17 and A18 smartphones from August through November this year is approximately 18 million units, accounting for more than half of the total Samsung Galaxy A series volume.

This appears to reflect the judgment that reducing sales to protect short-term profitability could create a greater burden by causing the company to lose market share. The Samsung Galaxy A series is a core product line supporting Samsung’s smartphone sales volume and market share in large markets including India, Southeast Asia, Latin America, and the Middle East and Africa.

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Chinese Companies Face Greater Cost Pressure

Another reason Samsung Electronics is not retreating from the mid- to low-priced market is that its competitors cannot avoid the same ‘chipflation.’

Chinese smartphone makers such as Xiaomi, Oppo, and Vivo have expanded their global presence with mid- to low-priced products built around price competitiveness. Because they rely heavily on such products, they also face a significant burden from rising memory prices. Raising prices would weaken their price competitiveness, while keeping prices unchanged would hurt profitability.

According to Counterpoint Research, Samsung Electronics ranked first in the global smartphone market in the second quarter of this year, with a 23% share based on shipments. Apple followed with 21%, while Xiaomi recorded 11% and Oppo and Vivo each posted 8%.

The global smartphone market shrank 7% year on year, while Samsung Electronics’ shipments increased 9%. By contrast, Xiaomi and Vivo declined 26% and 21%, respectively. Counterpoint analyzed that Xiaomi was particularly vulnerable to rising memory prices because entry-level and mid-range products account for a large share of its lineup.

Samsung Electronics appears to have concluded that these market changes could provide an opportunity to expand its share. If it maintains supplies of the Samsung Galaxy A series while Chinese companies’ sales weaken because of higher costs, Samsung could capture additional demand in the mid- to low-priced market.

India, Southeast Asia, and Latin America are particularly competitive markets for Samsung Electronics and Chinese manufacturers. If sales decline in these regions, Chinese companies could fill the gap, making stable supplies of the Samsung Galaxy A series and the preservation of price competitiveness important.

An industry source said, “Recent chipflation is clearly a negative factor for Samsung Electronics’ Mobile eXperience Division, but if it can withstand the period of rising costs longer than its competitors, this could instead become an opportunity to reshape the market.”

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Two-Track Strategy: Profitability Through S and Z, Market Share Through A

Samsung Electronics has product lines that target both the premium and mid- to low-priced markets.

The Samsung Galaxy S series is the company’s flagship line for high-priced products, while the Samsung Galaxy Z series targets the premium market with foldable phones. The Samsung Galaxy A series supports total shipments through high-volume sales, and the Samsung Galaxy M series is sold mainly in highly price-sensitive markets such as India.

Samsung’s strategy is to supplement profitability through premium product sales while maintaining Samsung Galaxy A series volumes to expand market share. Its recent decision to identify market-share expansion as a key strategy for the second half of the year is understood in this context.

However, a prolonged rise in memory prices could increase the burden. Even if sales of the Samsung Galaxy A series grow, continued high component costs could delay the recovery of the MX Division’s profitability. Conversely, if Chinese competitors raise prices or reduce production, Samsung Electronics could convert the cost burden it is currently accepting into increased market share.

An industry source said, “Whether Samsung can secure profitability and market share at the same time—by pursuing Apple in the premium market and competing with Chinese companies in the mid- to low-priced market—will determine the second-half performance of its smartphone business.”

This article has been translated by GripLabs Mingo AI.