Did Samsung Overprice The Note 8?

Samsung Electronics (OTC:SSNLF) unveiled its new flagship phablet, the Galaxy Note 8, yesterday at an event held in New York. While the device looks impressive, with high-end specifications such as a 6.3-inch curved screen and dual cameras, it sports the highest-ever price for a Samsung flagship, starting at $930. The pricing strategy might appear opportunistic, as the brand is just recovering from last year’s Note 7 fire crisis. However, we believe that the company could pull it off for a few reasons, which we explain below.

We have a $1,900 price estimate for Samsung Electronics, which is slighly below the current market price.

Muted Note 7 Impact

Samsung’s Note brand has a very devoted following, with power users identifying with its signature features such as the extra-large screens and the S-pen stylus. The absence of a product in the Note portfolio for almost a year, following the discontinuation of the Note 7, is likely to have created significant pent-up demand for a new Note device. Moreover, Samsung’s smartphone reputation may not have actually suffered a big setback after the Note 7 crisis, as it actually gained share in the high end of the market in the most recent quarter. This could give the company some pricing power in the marketplace.

Premium smartphone prices, in general, have been trending upwards. For instance, Samsung’s S8 Plus is priced at over $800. As Note devices have typically been the most expensive phones in Samsung’s lineup, the pricing appears to make sense. Moreover, Apple’s 10th anniversary iPhone – which is expected to positioned above its current flagship Plus models –  could sport a price tag of around $1,000. By pricing the Note 8 at similar levels, Samsung would have a device to compete directly with Apple’s new ultra-premium offering.

Discounts Could Have An Effect

Samsung’s products rarely sell at full price, as the company has a tendency of discounting its handsets relatively early in the product lifecycle. The Galaxy S8 and S8 Plus devices began seeing discounts of over $150 within two months of their launch, and it’s possible that Samsung could eventually do the same for the new Note as well. Carriers are also likely to offer attractive pricing or bundles for new and porting customers.

Component prices have also been trending higher, putting pressure on margins for smartphone vendors. For instance, DRAM and NAND prices have been seeing a steady increase since mid-2016, on account of strong demand and supply constraints. While Samsung is the world’s largest memory chip producer, there is a possibility that it could be keeping the price of its latest devices higher to partly defray the increase in input costs.

Market Tailwinds

There are also some tailwinds in the wireless market that are enabling companies to bump up prices on flagship smartphones. Wireless bills have been trending lower this year, on account of stronger competition and the return of unlimited plans, potentially giving subscribers more money to spend on devices (related: U.S. Wireless Price Wars Are Making A Big Impact). Additionally, carriers now offer financing schemes that effectively allow consumers to buy the latest handsets with no down payment, with the entire cost of the device paid over a period of one or two years. This also helps to mask the higher pricing of devices such as the Note 8.

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