Samsung (SSNLF) just unveiled the best $800 smartphone money can buy. Sadly, there isn’t much pent-up demand for expensive, state-of-the-art mobile devices anymore.
The Samsung Galaxy Note 7 is full of the innovative features every smartphone buyer in 2013 dreamed about. It’s waterproof. It has a beautiful 5.7-inch quad-HD display. That means there are more pixels than the human eye can see even when the screen is pressed up against your face in a virtual-reality headset.
It is powered by the latest Qualcomm (QCOM) Snapdragon 820 chipset, the best one that the company makes. It has 4 gigabytes of RAM, both quick and wireless charging, and expandable memory. Samsung claims it will support SD storage cards up to 2 terabytes even though no such cards yet exist.
Its battery is about 17% bigger, which is always a good thing. It has the best camera on any smartphone. In fact, its crazy-fast autofocus is on par with many high-end DSLR cameras. It has a built-in fingerprint scanner. and if that’s not enough, it sports an iris scanner, too. How cool is that?
In 2013, it would have been very cool, mind-blowing even. The problem is it’s not 2013.
People are keeping their old cellphones longer
Although most of us can’t live without them, our smartphone-buying habits have changed. Executives in Shenzhen, Silicon Valley and Seoul know all too well that product life cycles are getting stretched as carrier, two-year contract subsidies die. Skipping a number – the new Note 7 replaces last year’s Note 5 – doesn’t change the reality for most of us, the phone in our pocket is good enough.
Samsung and Apple (AAPL) understand the implications. So far they’ve been able to stay one step ahead by focusing on premium phones. Together they dominate sales for the most innovative phones and almost all of the industry profits.
Unfortunately, they’re now competing with their own models from previous years and with smaller, hungrier Chinese rivals content to flood the market with high-quality yet low-priced devices. It’s a dangerous combination that usually leads to lower average selling prices and reduced profitability.
Apple recently reported its second consecutive quarter of lower iPhone sales. This came despite the usual aggressive marketing push and opening new stores all over China, its biggest market. It’s even more worrisome that sales of the new low-priced iPhone 6SE outpaced the pricey top-of-the-line 6S model. It tells you people aren’t willing to pay up for the latest innovation regardless of marketing. Although there has only been a modest decline in average selling prices so far, the migration down the product line can’t bring much cheer to Cupertino. It also foreshadows a nasty surprise in September when the 2016 iPhone comes to market.
Samsung came to the course-change realization sooner. It streamlined its entire product line to wring out economies of scale and pump up profits. For example, the new Note 7 uses the same cameras as its flagship Galaxy S7 and S7 Edge. It also shares the same processor, screen resolution and case design too.
The change is a slightly different screen curvature, perfected during the production of tens of millions of panels for the 2015 Galaxy and Note editions. In fact, learning to make those panels at scale after so many early problems might be the best thing to come out of the 2015 experience. It’s certainly having a profound impact on profitability.
Smartphone innovation is tricky in 2016. While engineers are still capable of nifty new features, buyers won’t upgrade to get them. The Note 7 is certainly cutting-edge, likely the best device money can buy. Yet that’s no guarantee it will sell well — not in 2016.
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