Samsung Takes Google Software Challenge to Televisions

Samsung Electronics Co.’s challenger to Google Inc. software is moving from phones to big-screen TVs as the South Korean company tries to capitalize on the burgeoning interest in smart homes.

The world’s biggest maker of TVs will unveil the first sets powered by Tizen software at the Consumer Electronics Show this week, and all the Web-connected models it sells this year will run the operating system. The company also may demonstrate at CES how the TVs communicate with its washing machines, refrigerators and vacuum cleaners.

The controlling Lee family is trying to reinvent Samsung as a purveyor of Internet-connected appliances to grab share of a market that may be worth $7.1 trillion by 2020. Samsung wants to generate revenue from Tizen applications and services just as Apple Inc. and Google do from their operating systems, and the Suwon-based company is emphasizing TVs and consumer electronics after falling a year behind schedule on a Tizen-based phone.

“In smartphones, there’s no chance that Samsung’s Tizen can edge out the two dominant operating systems,” said Claire Kim, a Seoul-based analyst at Daishin Securities Co. “But in TVs, Samsung may have a chance.”

Samsung’s rise to No. 1 in global phone sales depended on Google’s Android. Nearly all of the 243 million smartphones Samsung shipped through Sept. 30 ran the software, which Google typically gives away in return for mobile advertising revenue and a share of app sales.

Phone Supremacy

Samsung faces the strongest challenge to its phone supremacy after posting the smallest quarterly earnings in more than two years. Operating profit at the mobile-phone unit, the company’s biggest cash generator, slumped 74 percent in the September quarter and sales fell about 33 percent.

That’s prompting the company to look for new sources of revenue. Tizen emerged after Samsung joined Intel Corp. and NTT Docomo Inc., among others, to develop an alternative to Android and build its software capabilities.

Helped by Samsung, LG Electronics Inc. and dozens of other producers, Android runs about 84 percent of smartphones. That splinters the pool of profits, with many vendors losing money in a crowded market, market researcher Strategy Analytics said in October.

Own ‘Action’

While Apple only has 12.3 percent of the market, the Cupertino, California-based company’s ownership of its operating system gives it greater control of every stage and a slice of each transaction.

“The value of an operating system is like intellectual property, you get a piece of the action regardless of the minor changes and you get to set the rules of the game,” Tom Kang, research director at Hong Kong-based Counterpoint Technology Market Research Ltd., said by e-mail. “It’s much preferable for a giant like Samsung to be able to steer its own fate.”

Shares of Samsung rose 0.2 percent to 1,333,000 won at the close of trade in Seoul. The stock dropped 3.3 percent in 2014 after a 9.9 percent decline a year earlier.

Google and Apple typically receive about 30 percent of every application, song or movie purchased to run on their operating systems.

Google’s “other” revenue, which includes the mobile Play store as well as Chromecast hardware, was $1.84 billion in the September quarter. In the same period, Apple had sales of $4.6 billion for iTunes, software and services.

Tizen Delays

By using its scale in consumer electronics and No. 1 position in TV shipments, Samsung could use the unveiling of Tizen sets to create a new standard for the industry. Samsung’s TV shipments may decline to 48 million units this year from 50 million last year, Daishin Securities estimated in December.

Building the TV business around Tizen will help create “a much more intelligent and integrated system,” Won Jin Lee, executive vice president at Samsung Electronics, said in a Jan. 1 press release.

Samsung’s initial forays into Tizen haven’t developed a breakout hit. Its first phone using Tizen was more than a year behind schedule. The wristwatches Gear 2 and Gear 2 Neo were released in April, and both are compatible with many of Samsung’s Galaxy phones.

Wraparound Screens

The company should improve its future competitiveness by pushing ahead with initiatives for its “smart home” and “smart health” businesses, co-Chief Executive Officer Kwon Oh Hyun told employees in a Jan. 2 message.

Samsung will be the biggest exhibitor of consumer electronics at the Las Vegas show, displaying TVs, tablet computers, smartphones, printers and cameras. The company will show off its Galaxy Note Edge phones with a wraparound screen, its virtual-reality headset and audio products.

Operating profit at the consumer-electronics division, which oversees TVs and appliances, probably dropped to 250 billion won ($227 million) in the fourth quarter from 660 billion won a year earlier, according to the median estimate of six analysts surveyed by Bloomberg News.

In the third quarter, the unit’s profit dropped to 50 billion won from 350 billion won because of falling prices and competition with Japanese and Chinese producers.

Vice Chairman Lee Jae Yong is helping oversee Samsung’s transition as he takes more of a leadership role since his father, Chairman Lee Kun Hee, was hospitalized in May.

Samsung is transferring about 500 engineers from its mobile-phone division and allocating them largely to the Internet initiative, people familiar with the matter have said.

“There certainly is a limit to just being a hardware maker without having its own operating system,” said Ko Jung Woo, a Seoul-based analyst at BS Securities Co. Ltd. “It’s positive for Samsung to brace for the next new battle, where all products will be controlled under one software platform.”

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