Galaxy s7 – More of same.

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S7 leaks highlight that Samsung remains all about volume.

• The specifications of Samsung’s next flagship product appear to show that Samsung is taking very little risk with its handset business this year.
• The Galaxy s7 will be launched in February and is expected to be made available in s7, s7 EDGE and EDGE+ variants mimicking exactly what has worked reasonably well in 2015.
• 64GB Flash storage, 4GB RAM, 12MP rear camera and a 2560×1440 Super AMOLED display are the headline specifications.
• US devices are expected to carry the Qualcomm Snapdragon 820 with ROW using Samsung’s own Exynos processor.
• There is no mention of any new hardware to power some amazing new feature nor of any services.
• Consequently, I expect that the outlook for the Galaxy s7 will be very similar to that of the iPhone 6s: more of same.
• This is why I suspect that relative to 2015, Samsung is going to have a better year than Apple.
• The iPhone is coming off a record year driven by faster than usual replacement sales while 2015 was year of stabilisation for Samsung.
• This is likely to set the tone for the device market in 2016 where RFM forecasts just 3% growth in smartphone shipments and a 12% decline in tablet shipments.
• When price declines are taken into account, it is extremely likely that the smartphone market will contract in revenue terms.
• This means that competition will become even more intense underlining the critical importance of Samsung’s volume advantage.
• Despite Huawei’s recent gains, Samsung still outsells its next nearest competitor by a factor of well over 2 to 1.
• This is what gives it the ability to earn 9-11% handset operating margins while everyone else struggles along with 2-4% in the best instance.
• I think that the sustainability of this premium depends almost entirely on its volume relative to its closest competitor rather than price.
• This is what Samsung does best and I am comfortable that it should be able to hold this advantage despite 2016 being one of the most difficult years in smartphones for several years.
• This combined with steady progress in the components business at excellent margins is what will return Samsung to some degree of growth in profits this year.
• This is why I like Samsung.
• Expectations and valuation are both low in contrast to Apple where much more is expected of the company going forward.
• Microsoft, Samsung and Facebook remain the ones I most like at the moment.
• I am fairly indifferent to Apple but cautious on Google, Twitter, Yahoo, BlackBerry and HTC.