Certain western governments might be uneasy about buying Huawei kit, but phone buyers flock to the brand.

The latest phone sales data from Gartner shows Huawei has won market share from Samsung and Apple. In the fourth quarter of 2018 Huawei sold a shade over 60 million phones. This compares with Apple’s 64 million and Samsung’s 71 million units.

The fourth quarter is usually the most important period for phone sales.

Huawei growing fast

Huawei sales grew nearly 40 percent compared with the same period a year earlier.

Perhaps the most remarkable aspect of Huawei’s success is that it is, in effect, locked out of the USA.

Gartner senior research director Anshul Gupta says; “Beyond its strongholds of China and Europe, Huawei continued to increase its investment in Asia-Pacific, Latin America and the Middle East, to drive further growth”.

Much of the company’s success came from lower price phones. Gupta says: “Huawei also exploited growth opportunities through continued expansion of the Honor series in the second half of 2018, especially in emerging markets, which helped Huawei grow its market share to 13.0 percent in 2018.”

Both Samsung and Apple sold fewer phones in the period than the same time a year earlier. Both companies had falling market share.

Samsung, Apple stumble

Apple suffered a year-on-year fall in sales of almost 12 percent. The company previously said this was largely due to falling sales in China, although numbers fell everywhere except North America and the wealthier parts of Asia-Pacific.

Samsung’s high-end phones failed to turn buyer’s heads. The company strengthened its mid-range models during the period.

Chinese brand Oppo, also enjoyed growth. It is now the world’s number four phone brand by unit sales. It has a market share of 7.7 percent.

The phone market has stopped growing. In the fourth quarter sales were 0.1 percent higher than a year earlier, essentially flat.

Gartner says the mature Asia-Pacific markets (which includes Australia and New Zealand) declined 3.4 percent.

While raw unit numbers excite many phone industry observers, the more important question is which brands are making money.

Galaxy Note 9 sets new bar for Android phone price

This year a lot of people will pay NZ$2000 or more for a phone.

Apple set the tone at the end of last year with an NZ$2100 iPhone X. Now Samsung has joined the party with an NZ$2000 Galaxy Note 9.

You can pay less. A basic iPhone X with 64GB of storage costs NZ$1800. The more expensive model has 256GB.

Samsung has an NZ$1700 Galaxy Note 9 with 128GB of storage. The NZ$2000 model comes with 512GB.

Whether you need that much storage when cloud storage is plentiful and mobile data is cheaper is beside the point.

Inflationary

These are two examples of how New Zealand’s Consumer Price Index or CPI is the nearest thing to an official measure of inflation. In the most recent year, it was 1.5 percent.

That means consumers paid 1.5 percent more for a typical basket of goods and services in the year to June 2018 than a year earlier.

Expensive

At NZ$1700, the Samsung Galaxy Note 9 is $100 more than last year’s Note 8. That’s 6.25 percent higher: more than four times the CPI increase.

Apple’s iPhone X doesn’t have a year earlier model to compare.

Instead, we’ll look at the iPhone 7 and iPhone 8. When it launched the iPhone 7 was NZ$1200. A year later the iPhone 8 went on sale at $1250.

That’s a four percent increase. Apple’s markup is smaller than Samsung’s, but still well ahead of the CPI.

Everyone is at it

It’s not only Samsung and Apple. The prices of Huawei phone models climbed over the years.

Even Oppo, where the phone’s low price is the most important feature, has increased prices.

If anything, Huawei and Oppo’s price increases have been steeper than Samsung and Apple’s because they come off a lower base price.

But don’t phones get better

You might argue that the newer phones are better so phone makers can expect to sell them for more money. There’s something in this, see below.

Phone prices were stable during for years while annual upgrades meant huge leaps in functionality. Today’s upgrades are incremental while prices leap.

Apple shows the way

Apple has always lead the way on phone prices. It’s no accident it is the world’s biggest company and enjoys large profit margins. That trillion dollar valuation didn’t come by chance.

When it launched the iPhone X last year, Apple showed it could push phone prices above the NZ$2000 mark without denting sales. That opened the door for its rivals to charge more. They won’t admit it in public, but the iPhone acts as their benchmark.

Apple sells fewer phones than Samsung or Huawei.

The iPhone makes up around 20 percent of the handset market worldwide. It accounts for around 80 percent of profits from phone sales. Almost all the remaining profit from phone sales goes to Samsung.

Profits

It’s not clear how profitable the other main phone brands are. It’s not even clear if they are profitable. The companies don’t break out figures in the way that Apple and Samsung do. Yet it’s clear they are not making big margins.

Until a couple of years ago the Android phone market taken as a whole ran at a loss.

Things have changed. In part that’s because phone makers have pushed up handset prices ahead of inflation. It helps that some of the big names have either gone to the wall or wound down their operations.

Price rises have two sides

Inside the phone business, people talk about the average selling price or ASP.

According to IDC’s Worldwide Quarterly Mobile Phone Tracker:

…”climbing ASPs continue to dampen the growth of the overall market”

…”Consumers remain willing to pay more for premium offerings in numerous markets and they now expect their device to outlast and outperform previous generations of that device which cost considerably less a few years ago.

IDC says worldwide phone ASPs are up 10 percent in the last year.

Sharper prices lower down the market

Phone makers love to tell investors they have managed to increase the average selling price of their phones.

In some cases, they have done this by bumping up prices on their flagship models while fighting tooth and nail further down the market.

You can still get bargains. Spend NZ$500 to NZ$600 and you can end up with something great. It won’t have the latest camera or tonnes of storage, but not everyone needs those features.

High prices could be here to stay

New flagship phones are expensive to make, but the cost of building a phone is a fraction of the selling price.

Putting more lenses and more camera sensors may cost a phone maker a dozen or so dollars. OLED displays, curved glass add to costs. Perhaps the biggest extra cost is the memory chips needed to boost a phone’s storage, there is a trend towards higher storage in phones.

Higher phone prices are unlikely to go away soon. The glory days of fast-rise phone sales are over.

People are now holding on to phones for longer, squeezing more value from the money they have already spent. So it becomes important for each sold phone to contribute a little more profit.

Galaxy Note 9 is now Samsung’s most important phone. It matters because lacklustre Galaxy S9 sales mean falling revenues. A successful Note launch could help reverse that.Two days before the launch I wrote that the Galaxy Note 9 had better be good.How did Samsung do?The Galaxy Note 9 is impressive by any standard. It is, for now, the best Android phone money can buy.That’s the first problem: You need a lot of money to buy it.

Samsung faces intense competition

Rival Android phone makers challenge Samsung. The best deliver almost all the functionality of a Samsung phone for a fraction of the price.Sure the Note 9 takes buyers to places less expensive Androids won’t. Its stylus puts it into a different class to other phones. There is no direct equivalent at any price.That difference means the Note has notorious loyal fans. Many potential Note 9 buyers will be existing owners looking to upgrade.You only have to look at the Galaxy Note 9 to understand why that might be a hard sell.The new phone looks like last year’s Galaxy Note 8. Never mind its new innards. Over the years phone makers have trained buyers to be wowed by showy, cosmetic changes more than a new processor.

Is the Galaxy Note 9 good enough?

On Friday’s showing, the Note 9 may be good enough for Samsung to keep the phone market pole position until tenth-anniversary models arrive next year.If the S10 and Note 10 ranges can deliver signature phones in the same way Apple managed with the iPhone X, then all will be well.From what was on show in Auckland it still looks like a great phone. If the two models were a few hundred dollars cheaper they would be world beaters. If Samsung decides to sharpen its pencil and drop prices later, it could have a winner this Christmas.On the other hand, phone innovation has slowed to the point where customers are holding on to old models for longer. So all bets are off.It’s not clear to me what those notoriously loyal Note users will do. They may upgrade or they may sit this one out and wait for the 10.There’s little to tempt a Note 8 owner to upgrade. The Note 7 was the disastrous exploding phone so there will be few upgrades from that model. If there’s a large backlog of Note 6 owners waiting to move then Samsung could strike gold.

About the phone

Samsung uses glass for the front and back. There are smooth, comfortable feeling curved edges and pressing the bottom right of the phone still ejects the slide-out S Pen. This is all just like the Note 8.It’s fractionally bigger and a tad heavier than the Note 8. That’s to accommodate a slightly larger than last year’s 6.4-inch Amoled screen and a hefty 4,000 mAh battery. Samsung says that’s enough to keep even heavy phone users going all day.Galaxy Note 9 sets new bar for Android phone priceBigger seems to be a theme throughout. There are two versions of the phone: a NZ$1700 model with 128 GB of built-in storage and a NZ$2000 version with 512 GB.

Octo-Core

Samsung uses different processors to power the Galaxy Note 9 in different markets. It didn’t say which chip New Zealanders get but it will be an eight core processor.Phones with 512 GB of storage get 8 GB of Ram, the other phones get 6 GB. To my knowledge the Note 9 is the first phone to get water cooling to stop the processor from over heating.It will also be the first phone to get the Fortnite game. I suspect the target market for Fortnite is not going to drop a couple of grand on a handset.At the launch Samsung made a big deal of the improved S Pen stylus. After all it is what sets the Note aside from every other phone.The stylus now connects via Bluetooth and can be used as a remote to click the camera shutter or do one or two other remote tasks. The model I saw was a bright yellow that contrasted with the navy blue phone. This looks much better than it sounds.Samsung has gone for much the same camera arrangement as the Galaxy S9.  That’s two 12-megapixel cameras with a variable aperture lens and a 2x optical zoom camera on the back.Like everyone else’s camera, the Note 9’s is sprinkled with AI fairy dust so the camera automatically detects what’s being shot and adjusts to compensate.One nice touch is that the Note 9 can work as a desktop computer in much the same way as an S8 and Dex Pad. The difference is that the Note 9 can plug directly into a monitor without the docking station.

Verdict

Samsung says the phone will come with Android 8.1, not the more recent Android 9. It is due to go on sale later this month. In normal times this would give Samsung up to six weeks of sales before the next Apple iPhone appears.The slightly bigger screen is a plus. For me, squeezing 4,000 mAh of battery capacity into a hand-sized device is more of an achievement. The update S-pen will entrance Galaxy Note fans.More storage seems like a good thing. You can bump it up to a Terabyte if you use the microSD slot. Though why you would want to pay extra to do that in an era of low-cost cloud storage is beyond me unless you want to travel with a movie library.While it doesn’t look like a sure-fire hit, it is possible the Galaxy Note 9 will strike a chord with Note loyalists and give Samsung a much-needed 2018 winner. It could just as easily have S9-like disappointing sales. Your guess is as good as mine. But, so long as no rival makes a breakthrough, it is good enough to keep Samsung out in front until next year’s releases.

On Friday Samsung New Zealand will take the wraps off its new Galaxy Note 9 phone. The main event is on Thursday in the US.

By comparison the Auckland affair will be low key.

Almost every time Samsung or Apple holds a major phone launch people say ominous words to the effect that: “there’s a lot riding on this”.

That’s because there often is.

Galaxy S9 disappointment

Samsung’s Galaxy S9 phone, which launched earlier in the year, was beautiful. But it failed to sell in anticipated numbers. So far it has sold 20 percent less than the S8 managed a year earlier.

This means the company needs the Galaxy Note 9 to succeed. In this case success means it has to sell in numbers close to last year’s Galaxy Note 8.

Two flops in a row would be a disaster.

We’ve been here before.

Last year there was a lot riding on the Galaxy Note 8. That’s because one year earlier the Galaxy Note 7 flopped because of its unfortunate habit of exploding. You couldn’t get an aeroplane without someone reminding you of the danger.

Recovery

Coming back from a public relations nightmare of that magnitude was a feat. Phone buyers were forgiving. At the time it was clear that Samsung had used up a lot of good will.

Another exploding phone would destroy the company’s hope of being a high-end player.

Which brings us to the Galaxy Note 9. To sell it has to offer a more compelling value proposition than phone’s from Samsung’s rivals.

This means two things. It needs to offer buyers considerably more phone than the Galaxy Note 8. A better camera isn’t going to cut it.

Storage

The market rumour is that Samsung will offer more storage than in any other phone. It’s not clear that this will be enough to get people to upgrade.

Maybe that’s what the market wants. More likely, it will be what a market segment wants.

Samsung’s threat is not Apple. There’s little traffic between Android and iOS phone users.

The real problem is rival Android phone makers. In New Zealand this means Huawei, Oppo and Nokia. There are other rival brands overseas

Rivals ready to pounce

Each of the companies mentioned has phones that are arguably either the equal of Samsung’s models or close enough that it makes little difference. But their models sell for hundreds of dollars less than Samsung’s.

Which tells us exactly what could give Samsung the 2018 hit phone it so badly needs: drop prices.

The Samsung brand carries enough weight to justify $100 or more than a Huawei. It’s hard to justify spending hundreds just to get a me-too phone with a posher brand name.

Oppo phones are almost as good and half the price. Nokia has better software.

Galaxy Note 9 has to be more than great

The Samsung Galaxy Note 9 has to be great. More important, it has to have a tempting price tag.

There are reports of revolutionary Samsung phones in the pipeline.

One model is foldable. Next year’s tenth anniversary Galaxy S10 is rumoured to have a fingerprint reader built into the display. Apparently some people are excited about that.

The Galaxy Note 9 has to be more than a place holder en route to those models. If it is another flop, the brand will lose its lustre and Huawei’s foldable phone and innovative finger reader will relieve well-heeled Android phones of their savings.

Samsung reported a second-quarter operating profit of US$13.4 billion. That’s up 5.7 percent on the same time as a year ago, but behind analyst expectations. Revenue for the quarter dropped 4 percent year-on-year.

The company blamed the missed estimate on weak Galaxy S9 phone demand.

Shipments were 20 percent lower than for the Galaxy S8 during the same period a year earlier.

Unpopular Galaxy S9

The Galaxy S9 went on sale in the first quarter of 2018. It looks set to be the least popular of the Galaxy S models since the S3 in 2012.

While the S9 is arguably the most powerful Android phone on sale, the basic design has changed little since last year’s Galaxy S8. The most noticeable improvement is a camera that takes slow-motion video and better low light pictures.

That’s not proved a compelling reason for S8 owners to upgrade. It’s not much of a step up from 2016’s Galaxy S7. And, to many, the S9 looks ordinary compared to Apple’s iPhone X.

Samsung challenges

Samsung faces two challenges. After years of fast growth, the phone market is flat or even declining. Many consumers have learned there is little reason to upgrade phones every year or two and are hanging on to older models for longer.

Yet the biggest threat to Samsung comes from Chinese phone makers who threaten the Korean company’s market lead. Huawei and Xiaomi, hard to find in New Zealand, are Samsung’s fiercest rivals.

All three companies make similar Android phones. In many cases, they offer much the same specifications and features for hundreds of dollars less than Samsung models.

Chinese competition

Chinese companies now also challenge Samsung by making cheaper televisions and displays.

Huawei doesn’t report separate figures for its phone sales. Yet the company saw a 15 percent rise in revenue for the first half of this year. Last week the company said it is on target to sell 200 million phones this year.

Samsung will launch a new “flagship” phone model next week. This will be it’s most important model during the run up to the end of the year, normally the busiest time for phone sales.