Why The Galaxy Note 7 Is Crucial To Samsung’s Mobile Strategy

Samsung Electronics‘ (OTC:SSNLF) strong momentum in the smartphone market looks set to continue, as it prepares to launch the Galaxy Note 7, its latest flagship phablet. Early impressions of the device – which sports high-end features such as Samsung’s signature curved screen and iris scanning security – have been very positive, and pre-order figures have reportedly been stronger than those of the Galaxy S7 and previous Note devices. Below, we take a look at why we think the Note 7 could be one of Samsung’s most important new smartphone launches in recent years.

See our full analysis for Samsung Electronics

Trefis has a $1,370 price estimate for Samsung, which is about 10% ahead of the current market price.

Fastest Growing Segment Of The Smartphone Market

The phablet market represents one of the bright spots of the saturating smartphone market, as an increasing number of customers see value in the larger screens and one-device-fits-all proposition that these phones offer. Phablet sales rose 86.9% year-over-year to 291 million units during 2015, and the number could rise to about 610 million by 2020, according to data from IDC. ^[1] While Samsung essentially created the phablet category with the first Note device in 2011, the firm has lost share to Apple (NASDAQ:AAPL) in the high end of the market, while facing pressure from Chinese vendors in the mid-range. It is possible that the much anticipated Note 7 could help Samsung regain some lost ground.

Capitalizing On Apple’s Slow Design Upgrade Cycles

The Note 7 is timed to hit the market roughly a month before Apple is expected to unveil its latest iPhone, and we think it is possible that the device could help Samsung win over some of Apple’s customers. The new iPhone is expected to be a relatively incremental upgrade, with its industrial design and display remaining largely similar to the iPhone 6 (launched in 2014) and 6S (2015) . This could prompt iPhone 6 customers rolling off two-year contracts and equipment installment plans to consider Samsung’s more contemporary looking handsets, rather than going for a two year old design. Samsung has also improved the user interface and experience on its smartphones considerably, and the switching costs from Apple’s iOS ecosystem are also likely to be diminishing, as a bulk of the new and popular cloud based services – ranging from streaming media to social networking – are largely platform-agnostic.

Boosting Samsung’s Margins And ASPs

Samsung’s pricing power has improved considerably in recent quarters, owing to the differentiated design and high-end technologies on its new smartphones. For instance, the company has been able to hold largely steady on the pricing of its Galaxy S7 devices, which were launched close to six months ago. Samsung looks set to capitalize on this trend with the Note 7, which will retail for about $850 on most U.S. carriers, marking one of the highest-ever launch prices for a Samsung smartphone. For perspective, the previous generation Note retailed for about $700 at launch on T-Mobile, while the S7 Edge sells for roughly $750. This should help Samsung bolster its smartphone ASPs, which stand at less than half of Apple’s (~$600). Moreover, as the smartphone markets are quite dynamic and perception-driven, a solid flagship such as the Note 7 could excite customers while creating a halo effect around Samsung’s broader smartphone unit.

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1. Smartphone Growth Expected to Drop to Single Digits in 2016, Led by China’s Transition from Developing to Mature Market, According to IDC, IDC, March 2016 [↩]