Why Sony's Smartphone Woes Should Worry Samsung

A Sony Xperia Z2 smartphone and compatible devices Photograph by Balint Porneczi/Bloomberg

Before Apple became its nemesis, the major foreign rival for Samsung Electronics was Sony. The Japanese company was far ahead of Samsung in developing innovative devices that consumers craved, and Samsung’s rise as a global power neatly coincided with Sony’s decline. Samsung is the top television brand around the world, for instance, while Sony’s TV business has lost money year after year. Samsung is the world’s top smartphone, while Sony has just 3.5 percent of the market worldwide.

So Samsung executives might take some satisfaction from the latest sign of Sony’s decline. Sony shares plunged as much as 13 percent in Tokyo trading today following the company’s announcement yesterday it would post a net loss of 230 billion yen ($2.1 billion) this fiscal year because of weakness in its Xperia smartphone business. Sony also announced it will lay off 1,000 of the 7,100 workers in its smartphone division.

Samsung can’t rejoice in the misfortune of its longtime rival, though. Sony’s woes are not just the result of management miscues at the company. They’re also a sign that mighty Samsung itself may be in trouble. Like Sony, Samsung has long relied on Android smartphones to compete against Apple’s iPhone. However, that’s becoming more difficult as the new iPhone 6 grabs attention among premium users and Chinese brands like Xiaomi and Huawei gain ground with inexpensive Android handsets. Further adding to the pressure, Google is helping Indian brands roll out Android One phones that cost as little as $100.

As analyst Harrison Cho of Samsung Securities (yes, Samsung) writes in a report published today, “the Android camp is being stifled with competition, as Apple leads the high-end segment.” Companies with Android phones “should continue to face downward earnings revisions and share-price corrections.”

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