Analysis: Samsung’s reputation damaged as prices drop at home for new premium phones

SEOUL (Reuters) – Samsung Electronics’ flagship Galaxy S22 smartphone (005930.KS) has been battered by reports of faltering performance and has seen carriers halve its home price in South Korea just weeks since its launch, hurting its image. as an iPhone competitor.

Consumers have complained — and even filed a class action lawsuit — about the phone maker’s announcement of what it describes as its most powerful smartphone, but with few details about performance management software that they say significantly slows the premium device when using processor-intensive apps.

These are the complaints that led the Korea Fair Trade Commission last month to investigate the world’s largest phone seller.

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The controversy is a blow to Samsung’s reputation for high-end phones – and possibly its finances – as it tries to make up for two years of stellar sales that missed analyst estimates and reverse a decline in market share.

“The dispute will definitely be a huge blow to Samsung’s credibility,” said analyst Lee Seung-woo at Eugene Investment & Securities.

At the heart of the complaints is Samsung’s Game Optimization Service (GOS) which manages device performance while gaming to prevent overheating and preserve battery life. The manufacturer introduced the software in 2016, just months before it pulled the Galaxy Note 7 flagship after a series of battery fires.

GOS automatically limits the phone’s performance while gaming but also while other processor-intensive applications are in use, said Geekbench, a widely used performance recorder, who found the software slowed down the S22’s processor by up to 46%.

The extent to which GOS has slowed down the S22, the lack of details about the software in marketing materials, and the inability to disable it has set social media on fire.

“This is an unprecedented crazy issue that cannot be justified in any way,” ITSub, a YouTuber with 2.1 million subscribers who specializes in gadgets, said in a YouTube post.

Samsung said it has released an update to allow users to disable the software without any safety risk. It also said it will continue investing for innovation in both hardware and software.

Lower prices

Samsung said the S22 series sold 1 million phones in South Korea within six weeks of its launch, and reached that number two weeks faster than its predecessor.

“The deliberate downgrade certainly had a negative impact, but its actual impact on Samsung’s sales appears limited. The data shows that sales were not affected much,” said analyst Kim Ji San at Kiwoom Securities.

However, major South Korean telecom providers nearly doubled their support for the S22, raising its price to 549,000 won ($451) from 999,000 won. Apple Inc (AAPL.O)’s iPhone 13, released in October, starts at 1,090,000 won with carriers offering around 150,000 won less subsidies.

“When subsidies rise simultaneously in all three carriers, it is the manufacturer that usually makes the contributions,” said an official with carrier LG Uplus Corp (032640.KS), who declined to be identified due to the sensitivity of the matter.

Data from market researcher Counterpoint showed that Samsung’s market share for 2021 for devices worth over $400 shrank 3 percentage points to 17% from the previous year, while Apple’s share increased 5 percentage points to 60%. The data also showed that sales of both the S20 and S21 fell short of the S Series’ first year level of 30 million units.

The early shipments of the S22, which launched in late February, said Counterpoint associate director Sujeong Lim said Samsung will have shipped more than 6 million phones by the end of March, broadly in line with expectations.

However, Lee expects Eugene Investment & Securities to combine government hype with increased component costs to leave operating profit in April and June in Samsung’s mobile arm at 3 trillion won, down from a previous forecast of 3.4 trillion won.

Kim Eun-ho, an analyst at IBK Investments & Securities, also lowered his forecast to 3 trillion won from 3.5 trillion won.

Samsung said Thursday it expects to report an estimated 50% jump in total operating profit from January to March on April 28, as demand for memory chips remains strong. Read more

Speed ​​Limit

Reviewers said that teardowns of the lower-priced S22 showed that the phone lacks a cooling component called a vapor chamber, which means more reliance on software to manage overheating.

Analysts said the tilt toward software solutions stemmed from a renewed policy of cost-cutting — a strategy they said was eroding the reputation for innovation based on hardware strength.

Samsung “has been very focused on cutting costs, which has led to this unfortunate situation,” Lee said.

It will not harm quality to cut costs, and will continue to provide products that place the highest priority on first-class product experience and quality,” Samsung Electronics Vice Chairman and CEO Han Jong Hee said at last month’s annual shareholder meeting.

No less than 1,885 consumers were not convinced, after they filed a class-action lawsuit arguing that Samsung’s marketing exaggerates the performance of the S22.

“If a Porsche had a maximum speed limit of 100 kilometers (62 miles) per hour, would you still buy it?” Kim Hoon Chan, a lawyer representing consumers, said about 1,500 people have joined to file a class II lawsuit.

(1 dollar = 1,218.4000 won)

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(Byung Wook Kim reports) Additional reporting by Joyce Lee. Editing by Myung Kim and Christopher Cushing

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