Samsung is on an AI surge — and this month promoted its latest Galaxy devices at MWC, “to prove just how powerful these devices are in enabling a better, more intelligent and connected future.” But it may not be enough. Samsung already struggles to balance its innovations with Google’s — under the Android umbrella, while Apple teases its own AI future. But the real threat to Samsung might be coming from an entirely different direction. And this will be much harder to deal with.
Remember China? I say that, because with all the excitement about Google’s Gemini, Samsung’s Galaxy AI and Apple’s grand plans for iOS 18, it seems easy to forget that we have spent the last five-plus years hand-wringing about China’s unfettered investments in AI and the likely consequences.
Well, we’re about to find out. “Chinese smartphone giants Honor and Xiaomi showed AI’s vast market potential at MWC Barcelona,” reported the South China Morning Post this weekend, with the context being the “challenge to Samsung and other global rivals.”
This has huge geopolitical security implications — with that world crossing over into the smartphone world, as we saw with Huawei’s US ban and the crackdown on Chinese silicon capabilities.
That’s the interesting missing piece from SCMP’s headline puzzle, of course — the gorilla in the cage, Huawei. Again — remember way back when? It’s not actually that long ago that Huawei was leading the global OEM pack, competing with Samsung and Apple for the number one global slot. But then along came President Trump’s crackdown and the rest, as they say, is history — at least until now.
A week ago, Nvidia identified Huawei as “a top competitor in several categories, including artificial intelligence chips,” in a filing with the SEC. The US crackdown on China’s access to chips made with US technology and know-how has driven the Chinese market towards independence — predictably. We are now starting to see the results. And while AI cloud processing and network equipment will remain the primary focus, handsets will be major beneficiary as well.
“China is a test field for generative AI and various smartphone features are still in the trial-and-error stage,” Canalys Shanghai analyst Lucas Zhong told SCMP, with the newspaper reporting that “he indicated that the mainland’s handset makers are ‘more radical’ than their global peers in exploring the potential of generative AI-algorithms like what ChatGPT uses to create new content, including audio, code, images, text, simulations and videos.”
Mobile World Congress is a strange affair — the level of Chinese OEM branding is staggering, with tens of millions of dollars invested in the four day event. It’s a level playing field, except that Apple elects to stay home, giving the smartphone headlines entirely over to Android.
Honor — a Huawei spinout, and Xiaomi — the natural successor to Huawei’s lead in battling non-Chinese OEMs in the west, both showcased the same kind of device innovation that Samsung and Google are deploying as we speak. Streamlining tasks, automatically interfacing into other apps, AI-based search, photography innovations, sorting user information. With generative AI to come.
“Increased AI integration in Chinese smartphones shows how a new tech arms race in the industry is heating up,” says SCMP, “several weeks after Samsung unveiled its new Galaxy S24 handsets with AI features based on Google’s Gemini technology.”
Last year, Chinese OEMs shipped more AI-enabled smartphones than anyone else, according to Canalys. And history tells us that China’s playbook will be to provide top-end features and functionality at lower-end pricing. Because they can. This is the threat to Apple (as we’re seeing now) and Samsung — in China to begin with, but with other markets to follow. The catch with AI is that it starts to level out other feature benefits on devices, with AI performance becoming the focal point.
This won’t heavily impact sales numbers in 2024 — that’s too soon. But that’s also not the point. The question for Samsung and Google — and Apple, of course, is how close can the Chinese manufacturers come to the best the west can offer. And from a user standing, where’s the differentiation. For a Samsung user to move to iPhone takes substantial effort. But to move to a global Xiaomi device is a much easier proposition. And if all the latest AI features can be had for less…
All China’s leading OEMs are investing heavily in ChatGPT-like LLMs to compete with Google and Samsung offerings. There will be some cultural challenges, given the nature of generative AI, but you can expect a web of partnerships to ensue. The other advantage these OEMs have is China itself — put simply, if the world’s biggest smartphone market is on your doorstep, you can quickly trial and error a wide range of innovations before exporting more widely.
Outside China — where Apple resellers are already reportedly discounting to compete with homegrown devices, I don’t see this as a major threat to Apple but it will be to Samsung. That’s what we saw last time around. While Apple’s global market share held up in 2023, Samsung’s was down in a declining overall market, with Xiaomi gaining ground on its larger rival. In the final quarter of the year, Xiaomi had closed the gap to less than 4%, shipping 40 million devices to Samsung’s 53 million.
In China, while Apple secured top spot, Honor, Oppo and Vivo were all within a percentage point of their US rival in terms of market share. Samsung doesn’t figure in those top sales rankings at all, despite ongoing efforts to recover its position in the world’s largest market.
This is what we saw pre-ban, when Huawei used its surge in the Chinese market as a slingshot to tackle the wider world with premium devices at non-premium prices. It set its sights on the global number one spot, beating Samsung and ascending those heights, albeit briefly given the geopolitics.
With the horsepower required to run on-device AI, suddenly the prospect of cheaper devices with flagship AI performance becomes a major opportunity. With premium Samsung (and Apple) devices now outside the reach of many consumers, the market is set for an interesting battle as AI-enabled device shipments start to surge later this year and beyond.
So, what could change all this — well, depending on who wins the White House in November, we might see a rerun of the US versus Chinese tech battle that turned the smartphone world upside down last time. Security is the joker in the pack here. Samsung might just have its fingers crossed…
