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Samsung Eyes Auto Expansion as High-End Smartphones Slow

Jan. 6 (Bloomberg) -- Richard Gordon, research vice president at Gartner U.K. Ltd., talks about worldwide technology spending in 2014. He speaks with Anna Edwards and Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)

Samsung Electronics Co. (005930), which sells almost one of every three smartphones, wants to parlay that technology into automotive navigation and entertainment systems for an industry that makes more than 80 million vehicles a year.

Asia’s biggest technology company is pushing beyond the hardware that underpinned its growth as global demand weakens for high-end handsets. Samsung is attending the International Consumer Electronics Show in Las Vegas this week along with a record nine carmakers, including Volkswagen AG’s Audi unit and General Motors Co. (GM)

Businesses that reach from batteries and household appliances to memory chips, cameras and liquid-crystal displays provide components the Suwon, South Korea-based company can use inside automobiles. Samsung is partnering with Intel Corp. (INTC) on open-source software called Tizen that can run smartphones, tablets, TVs and car systems, and has garnered interest from automakers including Toyota Motor Corp. (7203), the world’s biggest.

Mobile Computing Escapes From the Phone

“In the past, passengers just used cars for moving, but now they want to enjoy entertainment and access to the Internet,” said Lee Seung Woo, an analyst at IBK Securities Co. in Seoul. “It’s like a gigantic smartphone on wheels.”

Photographer: Brent Lewin/Bloomberg

A Samsung Electronics Co. store in the Tianhe district of Guangzhou, China. Close

A Samsung Electronics Co. store in the Tianhe district of Guangzhou, China.

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Photographer: Brent Lewin/Bloomberg

A Samsung Electronics Co. store in the Tianhe district of Guangzhou, China.

Among the applications Lee expects in the future from Samsung are windows made of transparent flat-panels that provide map displays and other information for people inside the car while still enabling full visibility. It also may use sensors to monitor passengers’ health, to select music to match a driver’s mood and to analyze traffic and suggest a better route, he said.

Qualcomm, Intel

Samsung declined to comment on its plans for the car sector, according to an e-mailed statement. The company is open to collaborations with automakers that could expand to include entertainment and navigation, President Hong Won-Pyo said by e-mail in October without elaborating.

Related: AT&T Revs Up Auto-Industry Push With Service Called Drive

Autos are set to be in the spotlight this year at CES, as carmakers look to catch consumer attention with new gadgetry in the cabins of their vehicles. Last year, more than 11,000 of the 150,000 attendees at the show described themselves as being in the automotive electronics business.

Samsung faces competition from chipmakers such as Freescale Semiconductor Ltd. that have historically supplied the auto industry and relative newcomers such as Qualcomm Inc. (QCOM), Nvidia Corp. (NVDA) and Intel.

Photographer: SeongJoon Cho/Bloomberg

An employee helps a customer at a Samsung Electronics Co. mobile store in Seoul. Close

An employee helps a customer at a Samsung Electronics Co. mobile store in Seoul.

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Photographer: SeongJoon Cho/Bloomberg

An employee helps a customer at a Samsung Electronics Co. mobile store in Seoul.

Samsung Decline

Qualcomm, whose radio chips are part of GM’s Onstar service, and Nvidia, which supplies the processors for Tesla Motors Inc. (TSLA) and Volkswagen AG’s Lamborghini vehicles, are trying to bring elements already widely used in mobile phones to cars. Intel, the largest maker of personal-computer processors, supplies Tata Motors Ltd.’s Jaguar Land Rover and Hyundai Motor Co.

Samsung shipped a record number of handsets in 2013 and posted its highest quarterly earnings, yet its stock had its first annual decline in five years amid signs of slowing growth in high-end handsets and competition from Apple Inc. (AAPL)’s new iPhones.

Shares of the company, which reports preliminary fourth-quarter earnings tomorrow, rose 0.9 percent to 1,307,000 won in Seoul. The stock dropped 9.6 percent in the previous six trading days, a slump that erased about $19 billion of market value, or more than the capitalization of smartphone competitors HTC Corp. (2498), LG Electronics Inc. and BlackBerry Ltd. combined.

Car Semiconductors

Samsung’s market capitalization is about $181 billion, making it one of the 30 biggest companies in the world, according to data compiled by Bloomberg. Billionaire Chairman Lee Kun Hee on Jan. 2 urged Samsung’s 236,000 workers to move beyond hardware and create new technologies, markets and business practices.

“We must give a bigger push for innovations,” Lee, South Korea’s richest man, said in his New Year’s speech to employees.

Samsung shipped 81.2 million smartphones in the third quarter, accounting for 31.4 percent of the global market, researcher IDC said in October. Apple shipped 33.8 million for 13.1 percent market share.

Global vehicle production was 79.3 million in 2013 and will reach 82.4 million this year, Morgan Stanley said in a Dec. 3 report. The average car contained about $330 worth of semiconductors in 2012, compared with $200 worth in 2002, market researcher IHS said in a Sept. 9 report.

By 2020, there will be about 152 million Internet-connected cars on the road, IHS Automotive said in a Nov. 19 report.

Tizen Software

Google Inc.’s Android operating system has underpinned Samsung’s growth into the world’s largest smartphone maker, deploying the software on devices costing from less than $150 to more than $900. Yet Samsung has collaborated with companies including Vodafone Group Plc and Huawei Technologies Co. to develop Tizen.

Samsung plans to release its first smartphone featuring Tizen sometime this year.

“Tizen is all about building an open, skilled platform that can support a broad range of devices,” Mark Skarpness, director of systems engineering at Intel’s Open Source Technology Center, said in Seoul in November. “We’ve also been part of work supporting in-vehicle infotainment. So, really adapting Tizen to the specific needs of automotive use.”

Google announced the Open Automotive Alliance in a blog post today, teaming with carmakers to bring Android to vehicle infotainment systems. Partners include GM, Honda Motor Co., Audi (NSU), Hyundai and Nvidia.

Patent Battles

Ford Motor Co. and Microsoft Corp. teamed to make MyFord Touch, which ties cars to mobile devices and allows for things like voice commands.

South Korean competitor LG said in June it was forming a car components division.

Samsung, which has battled Apple over patents in courtrooms across four continents, is keen to become known more as an innovator and less as a fast follower, a reputation it was saddled with after the iPhone maker accused it of “slavishly copying” its designs.

Samsung adapted existing technology to its massive manufacturing scale to become the world’s biggest maker of smartphones, memory chips and TVs. The companies it eclipsed in those markets include household names Apple, Sony Corp. (6758), Panasonic Corp. and Toshiba Corp.

The push into automotive isn’t helped by the head start Samsung gave electric-car makers such as Tesla that have manufacturing plants, dealer networks and procedures already in place, said Shin Chung Kwan, an analyst at KB Investment & Securities Co.

High-End Saturation

“The notion that IT companies will be able to dominate the automakers’ domain is pure imagination,” Shin said by phone. “You need production and quality management, you need design skills, you need a dealer network, and you need to set up the logistics between each and every auto part that goes in the car.”

As smartphone penetration rates near saturation, the pressure is building for Samsung to find new sources of growth, especially as average selling prices slide. As cars become more dependent on their electrical systems, this provides opportunities for Samsung, said Park Hyun, an analyst at Tongyang Securities Inc. in Seoul.

“The ‘next-generation car’ means everything inside will be operated and automated by an operating system and sensors,” Park said. “In that sense, technology companies can have bigger leverage than the traditional automakers. Samsung is a rare company that doesn’t only have manufacturing competence, but also has a broader know-how in components.”

To contact the reporter on this story: Jungah Lee in Seoul at jlee1361@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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