Samsung Has No Choice but to Copy Apple

NEW YORK (TheStreet) -- Investors were stunned to wake up to the news Thursday that Samsung (SSNLF) had replaced Chang Dong-hoon as its its head of mobile design. This would be like Apple (AAPL) taking the design power away from Jony Ive. It has come out of nowhere.

Samsung's ADR was selling for a steady $1,350 per share at 10 a.m. on Friday, while Apple shares were at $582 (about 1% down from the open).

Part of the surprise stems from the fact that it has only been a few weeks since the Korean tech giant launched the new version of its flagship phone, the Galaxy S5. And by all accounts, the phone, which received strong praise for its features, was said to be selling like hotcakes.

Those who reviewed the phone applauded the fast processor, bright screen and superb camera. And it's waterproof! According to Forbes, which cited third-party data, the Galaxy S5 was selling much faster in its first week-and-a-half than the S4.

Consider this. In the first 11 days of launch, the S5, which comes preloaded with smart remote app Peel, already had 1 million activations. By contrast, it took the Galaxy S4 five additional days to reach the 1 million activation mark.

This gave Samsung investors hope that the company would put to rest the fear that the high-end device market is saturated, which seemed likely in its recent earnings results. So it remains to be seen whether Dong-hoon's dismissal is due to any sudden slowdown in sales. While suggesting that Dong-hoon will retain a broader role with the company, Samsung called the move a "routine shuffle." But no one gets canned for doing a great job.

Is this Samsung acknowledging defeat -- that it has fallen short of the rumored features in Apple's iPhone 6?

Well, it's also possible that Samsung is beginning to shift its focus on the heels of Apple's resurgence. In any event, it is clear is that Samsung no longer believe that its strategy of producing "very good -- but not amazing" phones can still work.

Samsung has been content to go after the low-end device market. This is an area which Apple, despite pleas from investors and analysts, has ignored. To dominate that market, Samsung has gotten by with using plastic covering and other cheaper materials. That placed the phones at a much lower price.

But this also limited Samsung's margins -- and its ability to make money.

As it stands, over the past two quarters, Samsung has seen its earnings decline, which has caused an 8% drop in its stock in the trailing 12 months. Although the company has posted a slight increase in revenue, its mobile segment, which was is fastest-growing business, has also posted declines. And management just issued weaker-than-expected guidance.

Interestingly, it seems the tables have suddenly turned. It's been almost two years since Apple had the unforgettable map-gate situation. At the time, CEO Tim Cook wrote an open letter to consumers offering an apology.

In that letter, Cook said, "We strive to make world-class products that deliver the best experience possible to our customers. With the launch of our new Maps last week, we fell short on this commitment." A few weeks later, Tim Cook fired Scott Forstall, the designer to iOS, which runs mobile software for the iPhones and iPads.

That was the beginning of Apple's decline, which saw the stock lose 40% of its value in the next several months.

There are some similarities here with Samsung. But by sticking to its core beliefs, Apple was able to recover -- albeit taking a bit longer than expected.

Can Samsung copy Apple and do the same? It may have no choice.

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At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned.


This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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