Samsung Unveils Wraparound Note to Counter Large-Screen IPhones

Sep 04, 2014 4:04 am ET

Sept. 4 (Bloomberg) -- Samsung Electronics Co. unveiled its first smartphone with a display extending down one side as it counts on two new versions of its Galaxy Note devices to help fend off Apple Inc.’s push into large-screen mobiles.

The 5.6-inch Note Edge allows users to read messages, news and stock tickers from an angle by extending the display beyond the front of the phone. The Note 4, the latest version of Samsung’s marquee 5.7-inch device, features an upgraded display and improved camera, Samsung said in Berlin yesterday. The company also showed off a virtual-reality headset, developed with Facebook Inc.’s Oculus unit, and a new smartwatch.

Samsung rose after the phones were announced as the company seeks a hit following a muted reception to the Galaxy S5 that triggered a slide in earnings and provided opportunities for low-cost producers to surpass its sales in China and India. Apple is set to introduce two new iPhones on Sept. 9: one with a 4.7-inch screen and another with a 5.5-inch display, people with knowledge of the plans have said.

“The design is quite cool and interesting,” said Lee Min Hee, a Seoul-based analyst at I’M Investment & Securities Co. “Samsung will study the market reception first and if received well, it may apply the flexible display technology to its upcoming Galaxy phone next year.”

Shares of Samsung rose 1.8 percent, the most since Aug. 4, to close at 1,210,000 won in Seoul. The stock has dropped 12 percent this year, wiping about $23 billion from Samsung’s market value, after a 9.9 percent decline in 2013.

Wearable Devices

The Note 4 that goes on sale next month features higher- definition resolution than previous devices, three microphones that can cancel noises during recording, and the ability to capture group self-images within a 120-degree view. It also includes a 16-megapixel camera.

The Note Edge will go on sale later this year.

“Samsung is the creator of the bigger-sized smartphone market in the high-end space, and it did pretty well until now because there were no players who can possibly compete against it,” said Lee Jae Yun, a Seoul-based analyst at TongYang Securities Inc. “The prolonged concerns over the new iPhones are finally about to be realized.”

Samsung also announced its new 2-inch Gear S wristwatch device with a curved display and built-in network connectivity for users to make calls and get text messages. It also touts enhanced fitness features without the need for connection to a smartphone.

Virtual Reality

Apple will introduce a wearable gadget at next week’s briefing, a person familiar with the plan has said.

“Samsung clearly wants to capitalize on its lead in the smartwatch space before Apple announces something,” Ben Wood, an analyst at industry researcher CCS Insight, said in a note.

Suwon, South Korea-based Samsung developed more functions to be used with a stylus, such as text marking, to set the devices apart from big-screen competitors. Apple has eschewed the use of styluses in favor of touch screens since the first iPhone debuted in 2007.

The user base for the Note has been broadening beyond business-oriented users, Samsung said. The Note 4 will be priced similarly to the Note 3, while the Note Edge will be more expensive, the company said.

The new virtual-reality headset, which connects to the Note 4, will sell for less than $1,000. Samsung said it’s working with Hollywood studios and video-game makers, including Electronic Arts Inc., to deliver 360-degree shows and programs for the hardware.

Falling Earnings

“We will never slow down,” Lee Don Joo, head of sales at Samsung’s mobile division, said on stage at the annual IFA consumer electronics show in Berlin.

Samsung is grappling with slumping earnings as Chairman Lee Kun Hee, South Korea’s richest man, remains hospitalized after a heart attack in May. The mobile unit accounts for more than half of the company’s profit.

The company posted the smallest quarterly profit in two years during the three months ended June 30, mainly because of increased marketing costs for its cheaper smartphones amid competition from Chinese makers including Xiaomi Corp. and Lenovo Group Ltd.

Samsung was the only producer in the world’s top five to post lower shipments in that period, according to data compiled by Bloomberg Intelligence from IDC.

“The Note Edge device has a pretty interesting display feature and Samsung has provided some improvement and advance in its design,” said Greg Roh, a Seoul-based analyst at HMC Investment Securities Co. “But the issue now is how much more user experience it can offer to be well received by consumers.”

Xiaomi, Micromax

Xiaomi became the largest smartphone vendor in China, while Micromax Informatics Ltd. topped Indian mobile-phone shipments, according to data from research firms last month. In both cases, Samsung was overtaken as the largest vendor in the market.

The company may post its fourth straight drop in operating earnings in the quarter ending this month, according to analyst estimates.

“The problem in consumer electronics is if you lose scale, you have an impact on margins and Samsung’s brand is not as strong as Apple’s,” said Adnaan Ahmad, an analyst at Berenberg Bank who is the most accurate among the 49 analysts covering the stock for the past year, according to the Bloomberg Absolute Return Rank.

Both Apple and Samsung are facing a tougher environment in China, the world’s biggest market, as wireless carriers cut spending on phone subsidies that make devices more affordable and drive sales of new models.

Typically, Apple and Samsung sell their high-end phones to carriers for about $600 to $800 each. The operators then subsidize the price, with the biggest discounts usually offered in conjunction with the most expensive subscription plans.

China’s three state-run carriers may cut subsidies by as much as $3.9 billion this year.

--With assistance from Sharon Cho in Seoul.