Market Insight

Samsung's Gear 360 VR camera will be a halo product which will boost Galaxy S7 smartphone sales

February 21, 2016

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 Samsung unveiled two new smartphones at MWC 2016, the Galaxy S7 and Galaxy S7 Edge, notable features include:
- Improved camera: faster auto focus with 100% phase detection pixels, better low light performance F1.7, but with a lower 12MP sensor than the S6.
- Mobile games focus: Graphics hardware support for the Vulcan API, a successor to Open GL Software to hide distracting notifications during play, option to lengthen game play by lowering display resolution and frame rates. 
- IP68 water and dust resistance.
- Water cooling and a top end chipset. Claimed 30% faster CPU, 64% faster GPU.
- Expandable micro SD card memory slot.
- Larger 5.5" display for S7 Edge, compared with 2015's S6 Edge. Regular S7 keeps the 5.1" size used on S6 and S6 Edge.
Samsung also launched the Gear 360 camera:
- Twin 13MP, 180 degree sensors, F2.0.
- Still photo, video, time lapse.
- Bundled with S7 pre-orders for free as a promotion.
Our analysis
The Gear 360 is a much more important product than its future shipment volumes will indicate. IHS expects Samsung smartphones will outsell the Gear 360 by over one thousand times this year. But the Gear 360 is critical to help Samsung to persuade consumers it is time to upgrade their two or three year old smartphones which cannot benefit from new VR experiences teased by the Gear 360. In effect, Gear 360 is a marketing vehicle for the Galaxy S7, as well as for Samsung's Gear VR headset.
IHS forecasts Samsung will re-enforce its position as the largest manufacturer of smartphones in 2016 with these improvements in this year's Galaxy S7 models, supported by strong VR marketing to drive consumers to upgrade their old  smartphones.
With the S7, Samsung has the confidence to leave its latest flagships with a very similar design to last years' S6 range. Other companies such as Apple with the iPhone 6S, or HTC with its One M9, have struggled to communicate the improvements when keeping their smartphone models' exterior industrial designs the same between years.
Samsung's apparently risky design strategy to evolve its 2016 smartphone industrial design, not start afresh, is the correct one because Samsung's curved edge design remains highly differentiated both from Samsung's competitors, and from older smartphone models currently used by potential upgraders. In addition, Samsung's recent smartphone performance has remained relatively strong, with Samsung smartphone shipments units up 9% in the fourth quarter of 2015 year on year, and increasing by 4% overall in 2015 compared with 2014.
Smartphone makers must battle the smartphones from yesteryear to encourage upgraders, as much as 2016 competitors
With a maturing smartphone market, all smartphone makers are competing as much with the smartphones from several years ago, and which are still being used, as with other company's current smartphone ranges. Samsung's particular challenge is acute because its Galaxy S4, Note 3 or 4 models from 2012-2014 were all terrific smartphones which were well received by consumers and the operator channel. The mobile industry must understand in detail the characteristics of the smartphone active installed base because this will give needed  actionable data and insights to shorten the smartphone upgrade cycle, and hence boost smartphone shipments.
The Gear 360 is also striking because it is another example of the  "modular mobile" trend which IHS identified in 2015 and which continues to transform what mobile means. For example, when a consumer takes a 360 degree photo or video using with both Gear 360 cameras, the raw footage must be transferred to the smartphone to be stitched into a single panorama, using the high end processing which only a flagship smartphone is capable. This adds delays for consumers, but enables Samsung to reduce the electronics needed, and hence cost, of the Gear 360 camera.  
Premium smartphones are critical to sustain mobile games revenues which comprises over 85% of all mobile content & service revenues
However, Samsung must deliver excellent marketing to ensure the improvements with the S7 stand out. The three areas where Samsung is focusing its efforts are the right ones to emphasize where only the newest and most premium smartphones can deliver. Samsung should use the S7's gaming capabilities to accelerate partner marketing opportunities and drive further S7 smartphone sales.
Innovation needed to boost flagship smartphone sales
Samsung is correct to focus on camera quality and mobile games as part of its proposition, because these areas are two of the few where mid range models still struggle to deliver an acceptable customer experience. Mobile games also represent over 85% of mobile content and service revenues globally which means a great gaming smartphone can boost Samsung's fortunes when third party companies market the S7 as the perfect complement to their games.
The improved cameras is equally important. Smartphones are the main way consumers now take photos. The top five cameras used on Flickr are now all smartphones, but Samsung's two year old Galaxy S5 is the only one ranked, the rest are all iPhones. As a result, Samsung has an opportunity to drive greater adoption of its smartphones by improving its camera. But the spontaneous situations - fast moving children, indoor lighting in bars or homes - where consumers routinely take smartphone photos also happen to be challenging environments. 
Outside of Japan, very few smartphones include a high IP rating to protect against water or dust. Only 8% of the smartphone active installed base offers IP rated performance of IP54 or better.  Only Sony has routinely offered such a capability on their flagships. Now the S7 does not require caps to be left in place to maintain protection unlike their brief previous effort in the Galaxy S5, IHS believes Samsung will be able to maximize the opportunity without risking antagonizing operator partners from a high return rate when consumers do not keep socket covers in place.

South Korea USA
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