Samsung to gain from Huawei's difficulties but smartphone market remains challenging: Fitch

Samsung's handset segment shrank in the first quarter, with revenue declining by 6 per cent and operating profit sliding 40 per cent year on year.
Samsung's handset segment shrank in the first quarter, with revenue declining by 6 per cent and operating profit sliding 40 per cent year on year.PHOTO: REUTERS

SINGAPORE - South Korea's Samsung Electronics has an opportunity to strengthen its position in the structurally weakening smartphone market, amid turmoil from the US-China trade dispute, ratings agency Fitch said on Monday (May 27).

Huawei Technologies losing access to Google's Android operating system could "significantly hurt" the Chinese tech giant's smartphone sales outside China, which could help Samsung improve its market share, Fitch said.

The restrictions on US companies providing hardware, software and components to Huawei's smartphone business might stir up the smartphone industry by pausing Huawei's positive momentum.

"Consumers used to the Android operating system are likely to consider buying other smartphone brands than Huawei, and Samsung could restore market share especially in regions such as Europe, Asia ex-China and South America where Huawei achieved most of its growth in recent quarters," the ratings agency said.

Huawei generated almost half (49 per cent) of its revenue outside China as at end-2018.

Apple could also become another victim of the US-China trade war, and its market-share loss may accelerate in the Chinese market, which will benefit other local smartphone brands, Fitch noted.

Huawei is the biggest competitor of Samsung in the area of new-generation smartphones, such as 5G and foldable phones.

The US-Huawei trade issues may give Samsung the chance to get an early lead in these markets, although this will depend on how long the sanctions last, the agency said.

UK and Japanese companies have followed suit in delaying the launch of Huawei's 5G smartphones, which could help boost the sales of Samsung and LG Electronics, at least in the short term, it added.

On the whole, Fitch expects the challenging outlook for smartphone manufacturers to continue in 2019 in light of weaker demand due to saturation in developed markets and a longer replacement cycle.

Global shipment volumes of smartphones in the first three months this year fell 6.6 per cent from a year ago to 311 million units, declining for the sixth consecutive quarter, according to the International Data Corporation.

Huawei was the only major company showing growth, with a 50 per cent surge in Q1 smartphone shipment volumes from a year ago.

Huawei's shipment market share expanded to 19 per cent in Q1 2019, up from 12 per cent in Q1 2018, closing the gap with Samsung's 23 per cent share.

Samsung's handset segment shrank in the first quarter, with revenue declining by 6 per cent and operating profit sliding 40 per cent year on year. Despite the launch of its new flagship model Galaxy S10 series, Samsung saw volume drop 8.1 per cent to 71.9 million handsets shipped in Q1.