Smartphone Price Premium Ebbs for 5G
Slower consumer uptake, pandemic prompt Samsung, with its $1,000 Galaxy Note 20, and other equipment makers to rethink device costs
, the next-generation wireless standard once exclusively the province of top-line smartphones, is sliding into more affordable handsets faster than expected.
Just months ago, analysts had expected that 5G would jump start the industry after years of declining shipments. But smartphone manufacturers, already dealing with cooling consumer demand for expensive gadgets, have been walloped by the economic effects of the coronavirus pandemic.
Now, Samsung Electronics Co. and others are increasingly using 5G and the prospects for superfast data transmission to sweeten the appeal of cheaper phones and to get reluctant users to buy into a technology that has stirred little enthusiasm beyond early adopters. The slowing pace of advancements in smartphone technology has contributed to weakening sales in recent years.
Globally, the average selling price of a 5G-enabled phone fell to $813 during the first three months of 2020, a sharp reduction from the prior year’s $1,186, according to Canalys, a marketresearch firm.
The slide is fueled by China’s 5G rollout, where such devices fetch lower prices, said Nicole Peng, a Canalys analyst.
Samsung, which has been aggressive in its 5G strategy, said Wednesday its newest 5G enabled Galaxy Note 20 would sell for $1,000 starting later this month.
When the South Korean tech giant released its $600 Galaxy A71 handset in June, it became the cheapest 5G offering available in the U.S. This time last year, Samsung set the price for its premium 5G-enabled Galaxy Note 10 Plus at $1,300.
The company pushed to have the first 5G devices on the market and invested heavily in marketing them to gain an edge over other manufacturers.
Samsung now wants to broaden its product lineup aimed at the mass market and expects stiffer competition as smartphone rivals work to recover from pandemic-related challenges, Lee Jong-min, vice president of the company’s mobile division, said last week.
Its main premium smartphone rival, Apple Inc., released the $400 iPhone SE in April, which bolstered results in the company’s flagship business in the most recent quarter. Apple is expected to release its first 5G-enabled smartphone in the fall.
Google’s just-launched Pixel 4a retails for $350. Later this year, it plans to sell a 5G version of the device with a $500 price tag. Chinese manufacturers have also released cheaper 5G-enabled phones, with rival Huawei Technologies Co. jockeying with Samsung for the lion’s share of 5G devices sold worldwide, according to analysts.
“Inevitably those prices were going to have to come down, in order to get 5G in the hands of more users,” said Bryan Ma, an analyst with International Data Corp. “When you look at the first salvo of 5G phones potentially hitting fourdigit price tags, those weren’t going to hit a mass-market audience.”
5G’s high price had made it a difficult sell for consumers unconvinced by the limited network coverage and compatible devices. The U.S. has had a slower rollout of 5G technology compared with countries such as China. The coronavirus pandemic, which closed businesses and sequestered many employees in their homes, also weakened the argument for users now glued to computers on Wi-Fi.
Those challenges are prompting phone makers to retool sales strategies. Samsung’s smartphone shipments tumbled 29% in the April-to-June quarter—a more severe drop than the industrywide decline of 16%, according to Counterpoint Research—and saw Huawei usurp its position as the world’s No. 1 vendor.
The economic damage caused by pandemic lockdowns also affected Samsung’s key markets in Europe and North America, while Huawei benefited from a spending bounceback in China.
Adding 5G to less expensive devices is only part of the adjustment. As many consumers question the value of dropping $1,000 or more for a new smartphone, manufacturers are increasingly focusing on midtier options that compromise between performance and sticker shock.
Just a few years ago, reviewers and consumers had hailed phones such as Apple’s iPhone X and Samsung’s Galaxy Note 8 for breakthroughs justifying their $1,000 price tags. But those features have since become market mainstays.
Samsung in turn has pushed more of its Galaxy A-line models to try to capture broader bands of the market. It has also offered discounts and financing for its Galaxy S20 handsets that launched in February—ahead of the World Health Organization’s coronavirus pandemic designation.
Today, Samsung plans to release another midtier smartphone with 5G connectivity, called the Galaxy A51, for $500.
The Galaxy Note 20 comes in two variants: the $1,000 base model with a 6.7inch display and three cameras on the back. A larger version, the Galaxy Note 20 Ultra, has a 6.9-inch screen and an additional laser autofocus sensor on its cameras that bump the price to $1,300.
Samsung has often packed its flashiest features into the Galaxy Note, the industry’s first megasize phone when it first launched nine years ago.
But the Galaxy Note 20 lineup brings more tweaks to the existing lineup than true innovations, said Patrick Moorhead, president of Moor Insights & Strategy, an Austin, Texas, technology consulting firm.
“These are refinements,” he said. “A lot of these things are improvements on prior products.”
Samsung on Wednesday also unveiled new versions of its tablet, smartwatch and wireless earbuds.
It also teased its Galaxy Z Fold 2, the second version of the industry’s first mainstream foldable-screen phone, ahead of a Sept. 1 debut. The phone, which opens and closes like a book, got off to a rocky start last year when the company delayed its shipment after tech reviewers found design faults.