Across the consumer electronics industry, the induced effect of the pandemic disrupted the supply chain of electronic parts, from production to logistics. A shortage of processors subsequently led to diminished smart-device manufacturing output during Q4 2021 and Q1 2022.
Samsung has a highly diversified manufacturing footprint, i.e. lower dependency on other suppliers, and this enabled the brand to capitalize on a strong momentum during H1 2022.
As of now, Samsung has not noticed any major disruptions in the chip supply chain caused by the ongoing conflict. AP/SoC (Application Processor / System on Chip) supply worldwide is catching up, and fulfilling evolving consumers’ mobile-device demands for Samsung is not an issue.
Global inflation and currency devaluations
The Federal Reserve raised the target range for the fed funds rate by 75bps to 2.25%-2.5% during its July 2022 meeting, the fourth consecutive rate hike, and pushing borrowing costs to the highest level since 2019. Fed fund futures implied investors were pricing in a more than 81% chance of another supersized 75 basis-point interest rate hike in September.
The earlier surge in prices of crude oil and other commodities that resulted from the Russia-Ukraine conflict has also boosted prices for gasoline and food, creating additional upward pressure on inflation.
Inflation is skyrocketing in MENA’s emerging markets, driven by high-currency devaluation due to the strong USD and reduced central-bank reserves in an effort to protect local currencies. The dollar is at a strong two-decade high, crushing the buying power of most emerging market currencies and spiking fears of an economic downturn.
Rate hikes in 2022 have already tapered the growth in consumer spending across the US, Europe, and the MENA, reflecting lower real disposable income.
The Egyptian pound reduced its value by more than 20% and requested assistance from the IMF in March. Still, bond spreads have since risen, and credit default swaps (CDS) now factor in a 55% possibility of default on a re-payment. Â The Pakistani rupee has also declined to record lows.
However, the GCC is an exception where we see a strong housing market, expanding oil exports, and an increase in the multi-diverse non-oil revenue as a key backbone of the region.
Facts behind the figures
Samsung’s DX (Device eXperience) division, the overarching umbrella of all the brand’s device businesses, posted a 22% year-on-year revenue growth, and the semiconductor division (DS) posted a remarkable 24% YoY revenue growth.
Samsung also secured its revenue growth with solid sales of flagship models, such as the Galaxy S22 and Galaxy Tab S8 series. Samsung expects solid Q4 2022 profitability with foldable products becoming mainstream and surpassing sales of the Galaxy Note series.
A strategic propulsion
The success of Samsung’s journey to bring foldable innovations mainstream is spurring an entirely new smartphone market filled with excitement and anticipation.
To create the foldable series, Samsung worked with industry-leading partners and third-party app developers to produce a fully optimized ecosystem that brings to life the vision of these new form factors.
We aim for high-growth momentum with the release of new smartwatches and expand the ecosystem of Galaxy devices built on the Internet of Things (IoT), allowing devices to connect seamlessly with one another.
Moreover, Samsung plans to provide a modified, enhanced, multi-device experience based on SmartThings by introducing various day-to-day scenarios customized to individual life patterns.
Customer migration owing to behavioral patterns
The consumer purchase behavior in the mobile consumer-electronics industry is constantly changing, with customers increasingly valuing in-person experiences and socialization.
At the peak of the pandemic (Q1 20 to Q1 21), the online sales portion for smartphones scratched the 20% mark. Today, online smartphone sale hovers around 12%, higher than the pre-pandemic level of 7%. While the online channel is Samsung’s key priority, Samsung is banking on its capabilities to capture the increased retail footfall due to its prominent retail presence. That allowed Samsung to gain significant market share in Q1 and Q2 2022 across the MENA by focusing on the premium segment and collaborating with strategic channel partners.
Samsung also has used innovative product line-ups such as the ones aimed particularly at users who love the S-Pen and productivity features that are now implemented in the S22 Ultra and compatible with the Fold 4.
‘Push and Pull’ while optimizing the buying cycle
Extended holding terms and longer repurchasing cycles are not Samsung or MENA phenomena only; in actuality, the entire industry witnesses such effects. In the MENA region, only 22% (by value) of device sales take place through mobile network operators (IDC), and subsidies are becoming increasingly less common, which is affecting upgrade rates.
The majority of smartphone sales are non-subsidized and aren’t directly bundled into a tariff plan. So, the consumer has less financial incentive to replace the phone every two years. In pursuant to the durability of our products, repurchasing cycles are now above 24 months, which ultimately reduces the addressable market for new phone sales.
One incentive for consumers to upgrade can be the implementation of a strong trade-in program together with channel partners. Broadening the device eligibility, increasing the residual value, and combining it with competitive installment options could substantially reduce the price barrier and increase affordability and retention.
