Samsung has been searching for ways to combat Chinese smartphone manufacturers offering lower priced devices and eating into Samsung's market. Earlier today, Reuters reported Samsung's plans to enter the market of refurbished phones no later than in 2017, yet the company hasn't officially commented on the statement.
According to a confidential source, the company is planning to offer a refurbished alternative of its high-end smartphone models that were returned to the manufacturer as part of its one-year upgrade program that is in place in some selected markets.
As the company has been recently attacked by Chinese smartphone manufacturers in a lower price segment, such as Xiaomi, Samsung (OTC: SSNLF) is looking to maximize its cost efficiency and sustain operating margins above 10%.
Xiaomi offers its smartphones at the price much lower than that of Samsung, undermining the company's attempts to win over customers interested in a lower-priced smartphone models. Yet instead of trying to manufacture and sell their phones at a lower retail price, Samsung plans to refurbish their "used" premium smartphones and sell them for approximately half of its original price. It is still unknown to what extent the smartphones will be reassembled as well as what exactly the discounted price will be.
Some experts say that Samsung is planning to play a dangerous game as refurbished devices may pose a risk of cannibalisation to Samsung's own premium smartphones due to their high prices: the newest Galaxy S7 and Galaxy Note 7 32GB are sold for over 800$ in the U.S.
New market opportunities
Reuters said that refurbished phones could allow Samsung to enter the emerging markets such as India that were previously mostly unavailable to the brand because of the high retail prices of its devices. Samsung phones are far beyond the budget of most Indians as an average smartphone in India costs less than $90.
Earlier this year, India's government rejected Apple's (NASDAQ: Apple [AAPL]) initiative to sell its refurbished phones in the country. Demand for Apple phones stays high in India, according to the company, even though new iPhones are way too pricey for most Indians, leaving refurbished devices as a good alternative.
"We are not in favor of any company selling used phones in the country, however certified they may be," said Nirmala Sitharaman, India's Commerce and Industry minister, following Apple's second rejection to sell their phones in the country.
Next year, India is said to become the second biggest smartphone market n the world after China even though the average market price of a smartphone is far lower than that of European countries or the U.S. In case Samsung enters the market, the company would have to compete with India's local producers that sell affordable Android smartphones as well as get the government's approval to market its devices in the country.
Anyway, selling refurbished phones can be a good way for Samsung to fend off Chinese rivals in a lower price segment and possibly get a good chance to enter new major markets.
Samsung shares reached an all-time high value last week with 1,640,000 won a share. The company's stocks are up almost 30% since the beginning of the year, giving Samsung a market cap of $230 billion, according to CNBC.
In addition to that, Samsung's earnings for the second quarter of 2016 have been 57% higher compared to the same period of last year.