Samsung’s nightmare scenario is unfolding right before our eyes

Samsung Q3 2014 Earnings Analysis

Halloween has come a day early for Samsung as it released a truly scary earnings report that saw its operating profit tumble by 60% and its revenue fall by 20%. These top-line numbers don’t tell the full story of what’s really happening with Samsung, however — in reality, the company’s nightmare scenario is coming true at a truly stunning speed.

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What is Samsung’s “nightmare scenario,” you ask? That it will become just another low-margin Android vendor. For years, Samsung has literally been the only Android smartphone vendor to consistently turn a profit. Indeed, Samsung and Apple for a long time have accounted for all of the smartphone industry’s profits as smaller players have had to force themselves to fight over scraps.

But two things are happening right now that are sucking the life out of Samsung’s smartphone profit machine: It’s getting squeezed at the high end by Apple, which has finally released a phablet capable of taking on the popular Galaxy Note, and it’s getting mauled at the low end by vendors such as Xiaomi that are cranking out phones with strong specs that sell at rock-bottom prices.

How ugly does this look? So ugly that Counterpoint Research analyst Neil Shah says that Samsung is “pulling a Nokia,” which is something that no dominant mobile phone vendor ever wants to pull.

Counterpoint’s newest numbers show that Samsung’s total handset shipments fell by 15.4% year-over-year and that its smartphone shipments fell 10.8% over the same period. Samsung was the only major smartphone vendor to report a year-over-year decline in smartphone shipments as Apple, LG and even Microsoft’s mobile division all reported healthy gains. The biggest gainer over the past year has been Xiaomi, whose smartphone shipment volumes have shot up by an incredible 267.3% in that time.

So Samsung is definitely down right now, but it’s too early to count the company out. After all, the company must have a plan to get itself back on its feet, right?

Bloomberg reports that in light of its recent woes, Samsung is “counting on wraparound screens to stay ahead.” Yes, we’re talking about the same wraparound screens that didn’t light the world on fire when Samsung debuted them with the Galaxy Edge.

“The displays, which allow users to read messages and news from an angle, will be used on more products next year to distinguish them from rival devices, Suwon, South Korea-based Samsung said today,” Bloomberg writes. “Wraparound screens made their debut last month with Samsung’s Galaxy Note Edge.”

On second thought, this might get worse before it gets better.

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