Samsung’s Market-Flooding Strategy May Not Work Much Longer

Barely has a week passed since the historic ruling that went against Samsung (PINK:SSNLF) in the Apple (NASDAQ:AAPL) patent-infringement trial, and its business as usual for the Korean electronics giant. Continuing with its strategy of flooding the market with new gadgets, Samsung recently unveiled a plethora of mobile devices and PCs ranging from smartphones, tablets & phablets to smart cameras & ultrabooks. The multiple announcements included updates to some of Samsung’s best-selling existing models such as the Galaxy Note as well as new product launches such as Series 5 and Series 7 Windows 8 tablets and a ATIV S Windows Phone 8 smartphone.

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Samsung’s strategy has played out well … so far

The timing of these announcements probably points to Samsung trying to divert some of the negative attention it has been receiving since the end of the Apple patent trial, but it is also reminiscent of the strategy that has worked so well for Samsung in recent times, at least in the smartphone arena.

The past year has seen Samsung gain a lot of share in the smartphone market. Its market share has doubled to more than 36% in Q2 2011 from about 18% during the same period last year. We believe that a major part of the company’s success can be attributed to its much larger portfolio of smartphones that address more market segments than what other popular smartphones such as the iPhone do. While Samsung has had a lot of success in the low-end of the market, it has been gradually increasing its presence in the high-end smartphone market as well. Its huge lead over Apple in the second quarter of 2012, when it sold nearly twice as many smartphones as Apple, was partly driven by the success of the Galaxy S III which sold more than 10 million units in under two months.

But Apple’s patent win could cause a strategy shift

However, Apple’s recent patent win in the U.S. threatens to stop Samsung in its tracks. Having proven to the court that some of Samsung’s products infringe upon its patents, Apple plans to use this as a precedent to press further charges against Samsung. It has already filed an injunction to ban the sale of eight of the patent-infringing Samsung devices in the U.S. If Apple succeeds in doing so, Samsung may see only a limited near-term impact considering that these devices are fairly old and are nearing the end of their product cycle. But it could set a dangerous precedent for a similar case that is scheduled for later that concerns some of Samsung’s newer models such as the highly successful Galaxy S III.

With Samsung finally starting to make waves in the high-end smartphone market, a market that is highly profitable, the ruling couldn’t have come at a worse time for Samsung. While, in the near-term, this has little impact on Samsung’s strategy of flooding the market with new similar-looking products, eventually it will have to start focusing on designing its products to look different from Apple. That might cause delays in getting new products out in the market but it is difficult to say how much that will impact Samsung in the long-run considering the R&D resources it has at its disposal.

Apple’s use of design patents to slap Samsung with lawsuits could also cause Samsung to divert some of its resources to competing mobile ecosystems such as the Windows Phone. However, that would mean a return to ground zero for Samsung considering that Windows Phones currently command only about 3% market share. Eventually, we might have Samsung concentrating on Android for low-end smartphones (where Apple has little interest) and on other platforms such as Windows Phone for high-end ones. This would prevent Samsung from leveraging its growing clout in the Android market and put a cap on its market share growth potential in the future.

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