Samsung Kicks Off AI Upsell Cycle

It will certainly be the first to find out. The South Korean electronics giant took the wraps off its latest Galaxy smartphones on Wednesday. These are the company’s first to feature so-called on-device AI, meaning they can process generative AI data directly on the hardware without relying on sending the data up to the cloud. The Galaxy S24 family will begin shipping at the end of this month.

That will put it at least eight months ahead of the next family of iPhones, though it is unknown if Apple is planning to include on-device AI in this year’s batch. That will give Samsung plenty of time to see how much of the market is ready to buy into features such as real-time translation, image-based web search and photo doctoring that can make a basketball novice look like a slam-dunking NBA star. Samsung demonstrated all those features and more at an event Wednesday just a few miles from Apple’s Silicon Valley headquarters.

Samsung is hardly the only hardware company going big on AI this year. Personal computer makers and their chip suppliers are heavily touting so-called AI PCs that will also begin shipping this year. AI was the dominant theme at last week’s CES conference, with the technology now being embedded into gadgets ranging from barbecue grills to pet doors.

But for Samsung, the stakes may be higher than most. The company has long ruled the smartphone market from a volume standpoint, but a sharp drop in sales in 2023 resulted in it ceding that position to Apple for the first time. Samsung’s global smartphone shipments fell nearly 14% to 226.6 million units in 2023—its second consecutive year of declines, according to data from market research firm IDC earlier this week. The smartphone market as a whole has been sluggish for a while now, with unit sales declines showing in six of the last seven years, according to IDC’s data.

Can AI-enabled devices reverse that trend? It is possible, but new software features historically haven’t had the same impact on hardware sales as physical form-factor changes, such as bigger screens, beefed-up cameras or sleek new body designs. In Samsung’s case, the new S24 lineup looks very similar to last year’s models. The benefits of on-device AI may also take a while for the general public to understand, as many are just getting their feet wet with ChatGPT and other online GenAI chatbots.

But expectations are already rising. In a report Monday, UBS analysts projected that AI smartphones would sell about 190 million units this year, taking 16% of the global market in their first year of sales. Analysts are also expecting a mild uptick in PC sales this year following a double-digit decline in 2023, with AI-enabled devices expected to play a role. That may require buy-in from both consumers and corporate customers. The latter group is still evaluating what role AI will play in their organizations.

Meanwhile, Samsung has a pressing need to reverse its own sales trend. IDC analyst Nabila Popal says part of Samsung’s recent weakness stems from losing share to Apple in the premium end of the smartphone market. Samsung spent the bulk of Wednesday’s event showcasing the Ultra model of the S24 lineup, which competes with Apple’s popular Pro iPhones. Samsung even took a page from Apple and decided to encase this year’s premium phone in titanium—an expensive material noted for both its lightness and durability.

Making the smartphone smarter may not be enough on its own.

Write to Dan Gallagher at dan.gallagher@wsj.com