Samsung’s struggle: Selling the pricey Galaxy Note 20 in a pandemic – CNET

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Samsung’s Note lineup — including last year’s Note 10 — has fervent fans.
Angela Lang/CNET

Samsung’s mobile business has a new test this year: Getting buyers to fork over $1,000 during a pandemic. 

At 7 a.m. PT on Wednesday, the company will host its first virtual Unpacked event, broadcasting live from South Korea. It’s expected to unveil five devices, which likely include a new smartwatch and earbuds, as well as a tablet. Importantly, Samsung will show off its new Galaxy Note 20 and its Galaxy Z Fold 2.

Those phones won’t be cheap. The Note and foldable lines are actually the most expensive mobile devices Samsung makes. Even before the pandemic, Samsung was struggling to sell phones that cost $1,000 or more. One of the biggest innovations of last year’s Note 10 was a $50 price drop to $950. (Its Note 10 Plus, however, came in higher, at $1,099).

This year around, prices likely won’t be lower. The full Note 20 lineup, at least in the US, is expected to include 5G connectivity, which boosts the cost of making a device. Consumers who’ve been waiting for a Note that can tap into many different 5G networks may scoop up the device. Others could decide to save their money and wait until those 5G networks are more widespread. 

“People who had been waiting to upgrade their phones may decide this is the time to do it,” Technalysis Research analyst Bob O’Donnell said. “But I do think it’s going to be more challenged.”

The Note 20 isn’t the first major phone to launch during the pandemic. Apple and Samsung have both sold new phones this year, as have LG, Motorola and OnePlus. But Samsung’s phones tend to sell in much higher volumes than the devices from its Android peers. And its chief rival, Apple, hasn’t yet attempted to sell a high-end, flagship phone during the pandemic. Apple’s lone new smartphone this year has been the $399 iPhone SE. Its first 5G iPhones aren’t expected until this fall.

Samsung’s flagship phone from earlier this year, the Galaxy S20, went on sale as China and parts of Europe grappled with COVID-19. About a week after it hit stores, regions of the US started issuing stay-at-home orders to battle the virus. At the time the Galaxy S20 became available, most consumers had no idea how much the pandemic would change their lives.

Now millions are out of work amid a recession that is hitting the US hard, hundreds of thousands have died and places around the globe continue to battle a seemingly unending surge in infections. In the US, Samsung sold about 44% fewer Galaxy S20 models in the first four months of sales than the Galaxy S10 last year, according to M Science, a data analytics provider that tracks stats like mobile adoption. 

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This year was supposed to be a good one for the phone industry. Last year’s new innovations of 5G and foldable screens were supposed to get cheaper and more readily available in 2020, giving consumers a reason to upgrade. Instead, financial struggles and worries about COVID-19 will limit the number of devices companies can make and how many phones people will actually buy. Even once the worst of the pandemic is behind the US and other markets, the global economy will likely continue to struggle.

Samsung isn’t only dealing with hesitation about $1,000 devices, it’s also facing the challenge of selling a pricey flagship phone — as well as an even more expensive foldable — during a global pandemic.

Tae-moon Roh, the Samsung executive who oversees the company’s mobile business, in July wrote a blog post calling the current era the “Next Normal” and said there will be “even bolder innovation” going forward. “We’ll make mobile technology that’s more personal, intelligent, useful and secure,” he wrote. 

Still, the global smartphone market should tumble 12% this year, according to International Data Corp. The industry has its worst three months ever in the second quarter and shipments likely won’t grow until early 2021, the firm says. 

“There’s no question that challenges lie ahead for the smartphone industry,” IDC analyst Ryan Reith said. 

Cheaper and cheaper

Most of the high-profile phones launching since the pandemic have fallen in the mid- or low-price brackets. Apple’s iPhone SE, its first major revamp of its popular small phone in four years, arrived in mid-April with a starting price of $399. That seemed to be the perfect phone for the times. The device costs $300 less than the iPhone 11 but contains many of the same specs, appealing to people who can’t afford a $700 phone, let alone a $1,000 iPhone 11 Pro

Apple has sold nearly 3 million units of the device in the US from mid-April through early July, according to M Science. 

“The iPhone SE is performing better than expectations even in the pandemic,” said Mark Bachman, the lead tech and telecom analyst at M Science. “It’s proven to be a nice, low-cost opportunity to be an Apple [device] owner.”

Samsung in April unveiled lower-priced phones of its own, its new Galaxy A Series. The devices range in price from $110 for the Galaxy A01 to $600 for the Galaxy A71 with 5G. On the other end of the spectrum is a 5G version of Samsung’s Galaxy Z Flip, which goes on sale Aug. 7 for $1,450 — $70 more than the 4G model from February. 

While its lower-priced phones have tended to do well over the last few months, other high-end phones have hit the market during the pandemic, including the $800 LG V60 ThinQ (add $100 to $150 for the Dual Screen case), the $999 Moto Edge Plus, the $899 OnePlus 8 Pro and the $1,200 Sony Xperia 1 II

But prices for 5G phones are dropping a lot faster than for 4G phones in their early days, analysts say. That’s especially true as consumers spend their money on devices like computers and other tools for working from home, not necessarily new smartphones. 

“This will result in even more aggressively priced 5G smartphones than expected prior to the pandemic,” IDC’s Reith said. 

Note fanboys

Working in Samsung’s favor is the popularity of the product it’s launching. The Note has a fervent fan base, even with the battery problems and 2016’s Note 7 recall.

The first Galaxy Note, from late 2011, was an anomaly for its time. It included a 5.3-inch screen, much larger than the iPhone 4S’ 3.5-inches screen, with a stylus to scribble on the display. Early reviews didn’t know what to make of the Note, but Samsung didn’t abandon the lineup. Instead, it put its riskiest and most innovative technologies, like its curved display and iris scanner, into the Note before expanding them to other devices.

That stopped with last year’s Galaxy Fold, the first Samsung device to incorporate a foldable display. The move — effectively creating a flashier, higher end lineup — raised questions about who the Note is really for and where it fits in Samsung’s portfolio. At the same time, the Galaxy S lineup has gotten bigger and has started incorporating innovative technologies before they head to the Note. 

Even though the Note may not be Samsung’s flashiest device anymore, it still has plenty of fans. And its admirers tend to be tech early adopters and people who don’t mind spending more money on a phone. It’s likely many of those people haven’t seen their finances change during the pandemic. If they had planned to buy a Note before COVID-19’s spread, they’ll probably still do so.  

“At the end of the day, the people who are the target market for these products,” Creative Strategies analyst Carolina Milanesi said, “have not been necessarily impacted by the pandemic.” 

Fold challenges

Even with its loyal fans, Samsung’s sales may not be as high as for normal Note launches. And when it comes to the Fold, Samsung could face an even bigger challenge attracting buyers. The first version of the device, which featured a small front screen and opened into a tablet, cost $1,980 when it went on sale in September. And that version only included 4G. Samsung didn’t offer a 5G version in the US, but it likely will this time around. 

Adding 5G to this year’s Galaxy Z Flip boosted that device’s price by $70 to $1,450 and Samsung likely will increase the Fold 2’s price or at least keep it the same as the first model. 

Fold buyers in particular may need some sort of incentive to purchase the device, like offering an upgrade program. Earlier this year, Samsung launched a buyback program that offers to credit 50% of the full retail price to a customer’s payment account if they buy a Galaxy S20 directly from Samsung and return the device within two years. In late July, it said it would do the same for its upcoming, unnamed Galaxy device, likely the Note 20. 

It didn’t mention its foldables, which weren’t yet old enough to be ready for upgrade. But now, the second-generation Fold is expected to make big improvements from the first generation, especially when it comes to the materials and front-facing screen. 

Last year’s Fold used a plastic foldable display, while the Flip uses glass. It’s likely that Samsung will switch to glass for its Fold 2. And one of the big criticisms against last year’s Fold was the difficulty using the small front screen. Samsung could boost the display’s size and it’s also rumored to be including a stylus with this year’s Fold. 

Those are all features that an earlier Fold user may like to have — but may not want to spend another $2,000 on so soon. To get around that, Samsung could offer some sort of trade-in program or other benefits to someone buying the new Fold. 

“Why not encourage the upgrade and give them either a high-value trade-in or something they actually get them on the new product?” Milanesi said. “Especially given the times, it would be a nice gesture.”

5G first

One of the biggest expected changes in the Note 20 from last year’s Note 10 is the incorporation of 5G across the whole lineup. 

5G is expected to change the way we live, particularly as the world grapples with the pandemic. It could improve everything from simple video conferencing to telemedicine and advanced augmented and virtual reality. But networks are still being rolled out across the US and world, limiting 5G’s benefits. And 5G-enabled devices still cost more than their 4G predecessors. 

Last year’s Note lineup came with a 5G variant, but it was hobbled in many ways. The device didn’t work on all networks or tap into all flavors of 5G. The first Galaxy Note 10 Plus with 5G was initially only available for $1,300 on Verizon’s network. Later in 2019, a model with a different modem for AT&T and T-Mobile become available. Both versions could only tap into certain early 5G networks, not the broad and super-fast networks planned by the carriers. 

Buying a 5G Note 10 meant it would really only be useful for a year or so — at best — if a user wanted to access the full benefits of 5G. As people hold onto their phones for longer — three years in the US, up from the previous two — it’s key to future-proof whatever devices they buy. It’s likely that Samsung’s Note 20 will tap into more types of 5G and Samsung likely will only introduce 5G variants of the device, at least in the US. 

At the same time, adding 5G to the Note will likely add to the cost of the device, something that could work against the company. The base Galaxy S20 costs $250 more than last year’s lowest-end Galaxy S10 and this year’s Note 20 could also be pricier than previous 4G-only models.

For people living in areas without 5G, it could be more attractive to buy an older, cheaper 4G Samsung device or wait to buy a new phone until 5G is widespread. 

Samsung’s Galaxy S20 lineup was the first to include all 5G options, something very new for consumers. In the US, many people still prefer to see phones in person at a carrier or electronics stores before buying them. Because the pandemic closed many stores across the country, that hurt sales.

Hesitation about 5G in general likely played a role in the Galaxy S20’s lower sales, M Science’s Bachman says. In the US, consumers bought 2.3 million Galaxy S20 units in their first four months on the market, well below the 4.1 million tallied for the Galaxy S10 and 4.7 million for the Galaxy S9, his firm said. 

Instead, Galaxy S20 sales were on par with those of the Note, which has never sold as well as the Galaxy S lineup. Last year, US consumers purchased 2.4 million Note 10 devices in the first four months it was available. 

“The S20 … was made for somebody who could operate on a 5G network,” M Science’s Bachman said. “Of course, it would operate on a 4G network, but you’re paying a premium for that phone.” The 5G tax is something many people weren’t willing to pay.  

Samsung’s new Galaxy A71, which costs $600 for the 5G model, is likely cannibalizing some Galaxy S20 sales, Bachman said. It hit the market in the US in June and buyers save about $400 by buying that device and not the lowest end Galaxy S20. 

Now Samsung has to hope potential Note buyers don’t do the same.

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