When Chinese consumers of Samsung phones had been complaining for a year about the "crashing" and "sudden death" issues with Samsung phones, and Samsung remained indifferent, CCTV stepped in to support the consumers.
On October 22, CCTV's finance channel aired a report on the *Economic Half Hour* program. The report claimed that some models of Samsung phones were suspected of having design flaws that caused frequent crashes. Additionally, Samsung was accused of treating Chinese consumers unfairly during the repair and after-sales service process. The public generally believed that Samsung's responsibility lay in its after-sales service. Although Samsung quickly issued an announcement stating that seven models would be repaired or replaced for free, some people speculated that it was not impossible that Samsung was profiting from phone repairs.
Samsung’s repair issues may just be the tip of the iceberg for the company. Behind the flourishing sales figures, one is left to wonder if Samsung's actual situation is as optimistic as it seems.
Profit through Repairs?
This was not the first time CCTV had reported on Samsung's after-sales issues.
On October 10, CCTV exposed the exorbitant profits Samsung made from repairing phone screens. A screen that cost only around 10 yuan to produce yielded profits several times over. In this latest exposure, the "Font Library Gate" issue, caused by design flaws, resulted in consumers having to pay up to 2000 yuan for repairs, even though their phones were purchased through legitimate channels and should have been covered under warranty.
At 3:30 PM on October 23, Samsung released an apology and enterprise rectification statement via CCTV's finance channel, consisting of five points. The main content of the statement was offering free repairs for seven models suspected of having design flaws, along with extending the warranty period by one year.
Previously, Samsung repair centers informed customers that the problems associated with the "Font Library Gate" were due to improper consumer operation and thus not covered under warranty. This issue was not addressed in the current statement.
When further questioned by reporters about Samsung's current stance on this matter, a public relations officer from Samsung told our reporter, “All of Samsung's responses regarding the 'Font Library Gate' have already been published in the statement. As for everyone's concern about further attitudes, we are still in the process of handling it, and no other notifications have been received yet.”
According to CCTV's report, the return rate for Samsung phones was 20%. When visiting private mobile phone sales and repair points on Xinhua Street in Tongzhou District, Beijing, staff members told reporters, “The high number of returns for Samsung phones is actually normal because Samsung has the best sales volume, with hundreds of units sold each month. Most of the return issues are related to startup screen freezing, crashing, unresponsive touchscreens, overheating, and unstable signals. Basically, all these problems are minor and can be fixed.”
When reporters asked Samsung through the PR department whether Samsung was suspected of profiting from repairs, Samsung said they would discuss it with the relevant team and then respond. By the time of publication, Samsung had not provided any answers.
Zhao Cheng, senior TMT analyst at Founder Securities, told our reporter, “Currently, Samsung sells more than four hundred million phones globally per year, with China's sales accounting for about 20% of global sales. Samsung phones are generally high-end, and repairing each phone could yield a profit of around 2000 yuan.”
In fact, a R&D staff member from Nokia China told our reporter, “Companies often retain some defects when designing products. The 'Font Library Gate' issue that occurred with Samsung basically happens across multiple smartphone brands.”
Based on Zhao Cheng's analysis, “Apple sold approximately 140 million phones globally last year, while Huawei sold more than 70 million phones annually. Most Huawei phones are priced below 2000 yuan, so the repair cost for similar issues is only a few hundred yuan.”
Pressure from Competitors
While Samsung was grappling with after-sales issues stemming from product design flaws, its competitor Apple was celebrating good news.
At 12:00 AM on October 23, Apple unveiled its latest iPad Air and iPad mini Retina tablets. Just over a month ago, Apple also launched the iPhone 5C and iPhone 5S smartphones.
After the launch of the Apple iPhone in 2008, which almost dominated the smartphone market, Samsung began close cooperation with China's three major operators—China Mobile, China Unicom, and China Telecom—in 2010. They introduced many customized models to counter Apple, increasing their competitive leverage against Apple.
In 2012, Samsung launched the Galaxy series, which later became Samsung's most successful phone model. Taking advantage of the Android system, Samsung started competing head-to-head with Apple. To date, last year's flagship Galaxy S3 has sold more than 50 million units. Up to now, Samsung's biggest rival remains Apple. Over the past year, although Samsung still holds the top spot in the high-end market, the iPhone remains the best-selling smartphone.
Just on October 25, Samsung announced its Q3 2013 financial results, showing revenue of approximately $55.69 billion, a 13% increase year-on-year; net profit was about $7.6 billion, a 25% increase compared to the same period last year.
According to Bloomberg analysts, Samsung's net profit exceeded expectations mainly due to increased sales of lower-priced Galaxy smartphones and rising prices of storage chips.
The two most popular Samsung models involved in the alleged design defect issues reported by CCTV Finance were the Galaxy series and the Note series. In the second-quarter financial report, the sales of the Galaxy S4 and Galaxy Note 8.0 pushed the entire department's performance up by 9% compared to the previous quarter.
Dixons, the largest mobile communications chain store in Beijing, disclosed in its 2013 semi-annual report published in July that among the phones sold by Dixons, Apple accounted for about 15% of the market share, Samsung nearly 40%, and domestic brands only 35%.
One of Samsung's advantages is that it can largely achieve self-sufficiency in the production of key phone components, especially screens and CPUs, which are often in short supply. This is different from Apple, whose hardware is mostly supplied by various contract manufacturers, whereas Samsung has sufficient stock.
According to Apple's Q3 2013 financial report released on July 24, Apple's third-quarter revenue was $35.323 billion, a 1% increase year-on-year; Apple's third-quarter net profit was $6.9 billion, a 22% decrease compared to the same period last year.
Although Samsung's Q3 financial report showed excellent performance, it faced the challenge of Apple's recent release of new products. After the "Font Library Gate," whether Samsung's smartphone sales in China will be affected remains unknown. Our reporter contacted Samsung immediately to inquire whether the after-sales issues caused by smartphone design defects would affect Samsung's future market situation in China. By the time of publication, Samsung had not provided any response.