Analysis: Samsung’s reputation took a hit as prices were slashed at home for a new high-end phone
SEOUL, April 8 (Reuters) – Samsung Electronics’ (005930.KS) flagship Galaxy S22 smartphone has been hit by reports of hampered performance and saw carriers halve its price at home in South Korea within weeks only after its launch, damaging its image as an iPhone rival.
Consumers have complained – and even filed a class action lawsuit – against the handset maker advertising what it called its most powerful smartphone, but with few details about the performance management software they say , significantly slows down the high-end device when using CPU-intensive apps.
These are the complaints the Korea Fair Trade Commission began investigating the world’s largest phone supplier last month.
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The controversy is a blow to Samsung’s reputation for high-end handsets – and potentially to its finances – as it tries to make up for two years of premium sales that missed analysts’ estimates and reverse a decline in share Steps.
“The dispute will inevitably deal a major blow to Samsung’s credibility,” said analyst Lee Seung-woo of Eugene Investment & Securities.
At the heart of the complaints is Samsung’s Game Optimizing Service (GOS) which manages device performance during gameplay to prevent overheating and preserve battery life. The manufacturer introduced the software in 2016, just months before it retired its premium Galaxy Note 7 following a series of battery fires.
GOS automatically throttles the handset’s performance during games, but also when using other CPU-intensive apps, said Geekbench, a widely used performance scorer, which found the software slowed the S22’s processor up to at 46%.
The extent to which GOS slows down the S22, the lack of details about the software in marketing materials, and the inability to disable it have set social media on fire.
“This is an unprecedented crazy issue that can in no way be excused,” ITSub, a YouTuber with 2.1 million subscribers specializing in gadgets, said in a YouTube post.
Samsung said it released an update to allow users to disable the software without a security risk. He also said he would continue to invest in innovating both hardware and software.
The S22 series hit sales of one million handsets in South Korea within six weeks of release, hitting the mark two weeks earlier than its predecessor, Samsung said.
“The intentional performance degradation has surely had a negative effect, but its actual impact on Samsung’s sales seems limited. The data shows that sales are not greatly affected,” said analyst Kim Ji-san of Kiwoom Securities. .
Still, South Korea’s three major telecom providers nearly doubled subsidies for the S22, pushing its price as low as 549,000 won ($451) from a 999,000 won launch. Apple Inc’s (AAPL.O) iPhone 13, released in October, starts at 1,090,000 won with carriers offering more modest subsidies of around 150,000 won.
“When subsidies increase at all three telecom operators simultaneously, it is usually the manufacturer who pays the contributions,” said an official from operator LG Uplus Corp (032640.KS), declining to be identified due to the sensitivity of the issue.
Samsung’s 2021 market share in devices over $400 fell 3 percentage points to 17% from a year earlier, while Apple’s rose 5 percentage points to 60% , data from market researcher Counterpoint showed. The data also showed that sales of the S20 and S21 were below the Series S first-year standard of 30 million units.
The first shipments of the S22, launched in late February, indicate that Samsung will move more than 6 million handsets by the end of March, which is broadly in line with expectations, said Sujeong Lim, associate director of Counterpoint.
Still, Eugene Investment & Securities’ Lee expects the GOS fury to combine with rising component costs to leave Samsung’s mobile arm’s April-June operating profit at $3,000. trillion won, down from a previous forecast of 3.4 trillion won.
IBK Investment & Securities analyst Kim Un-ho also lowered his forecast to 3 trillion won from 3.5 trillion won.
Samsung said Thursday it expects to report an estimated 50% increase in overall operating profit from January to March on April 28 as demand for its memory chips remains strong. Read more
Teardowns of the cheaper S22 showed the handset lacked a cooling component called a vapor chamber, implying an increased reliance on software to manage overheating, reviewers said.
Analysts said the lean toward software-based solutions stems from a renewed policy of cost-cutting — a strategy they say is eroding a reputation for innovator based on the power of hardware.
Lee said Samsung is “overemphasizing cost reduction, which led to this unfortunate case.”
Samsung Electronics Vice President and CEO Han Jong-hee at an annual shareholder meeting last month said he “will not compromise quality to reduce expenses and will continue to introduce products that place the highest priority on first-class experience and product quality”.
At least 1,885 consumers are unconvinced, after filing a class action lawsuit arguing that Samsung’s marketing is inflating the performance of the S22.
“If Porsche has a speed limit of 100 kilometers (62 miles) per hour, would you still buy it?” said Kim Hoon-chan, the attorney representing the consumers, adding that some 1,500 people have joined to file a second class action lawsuit.
($1 = 1,218.4000 won)
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Reporting by Byungwood Kim; Additional reporting by Joyce Lee; Editing by Miyoung Kim and Christopher Cushing
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