Samsung Should Avoid Apple Envy
When Samsung Electronics Co.’s stock hit a two-year low this week, the message seemed loud and clear: The South Korean conglomerate's vaunted mobile business looked weak.
There's likely some more pain to come for Samsung: Slowing sales and profit growth that started last year could worsen amid competition from Apple Inc. at the high end of the mobile market and a slew of Chinese makers at the low. And there’s a sense that Samsung makes big, functional products -- not devices that consumers lust after for their beauty and design. People love their Galaxy phones and tablets, but few of them sleep on cardboard boxes outside a Best Buy to get the latest models.
So how much does this matter to a company that owns oil refineries, an aerospace division and chemical manufacturing operations -- a company that’s a major chip manufacturer, one of the world’s largest electronics makers and accounts for nearly a fifth of South Korea’s gross domestic product?
Mobile is, indeed, a mighty revenue driver for Samsung. Mobile devices made up about 56 percent of the company’s sales in the first half of this year (down from 59 percent when the company reported annual revenue of $217 billion last year).
Even so, there shouldn’t be such doom and gloom surrounding Samsung's prospects. Some savvy investors have started snapping up its shares because they believe the selloff was too severe and that other divisions in the company -- such as semiconductors -- are still growing.
Perhaps the most important thing to consider is that Samsung's mobile fortunes say more about the inevitable trajectory of the handset market worldwide than it does about Samsung’s future as an electronics juggernaut.
If you take a quick spin through the 70-plus years of its corporate history, you’ll notice that at various times Samsung dominated home appliances, microwaves (science oven!) and, eventually, televisions. When those businesses slowed down, Samsung opened its wallet, spending on research and development that allowed it to dominate mobile and smartphone markets. (A gentle reminder: Samsung still has the largest share of smartphone sales in the world. And it still sells us lots and lots of refrigerators.)
A Bloomberg Businessweek profile of Samsung last year surfaced the peculiar culture of paranoia, destruction and regeneration that allows the company to move so deliberately into new areas. Wisdom from Samsung Chairman Lee Kun Hee included this nugget: “Change everything but your wife and children.”
A failure to embrace and properly manage radical change has challenged (and sometimes unwound) companies as diverse as U.S. Steel Corp., Eastman Kodak Co., Microsoft Corp. and the entire print media business. It’s one of the hardest things for big companies to do, and Samsung has managed to do it a whole bunch of times.
While Samsung's mobile numbers aren’t good and it's expected to spend tremendous amounts on marketing to just hang on to what it already has in the smartphone business, there are other places to look when divining the company's future.
Samsung is spending more than twice as much as Amazon.com Inc., Apple, Intel Corp., Google Inc. and Microsoft on new plants and equipment. It has a massive $14 billion R&D budget (Apple only spends $4.5 billion), and it has a plan to spend liberally to create battery and medical-device technologies. Samsung is also working on energy-efficient technologies and connected-home hardware in research labs around the world.
Mobile devices and the rise of mobility itself still dominate a lot of tech conversations, and the mobile-phone market is supposed to grow by about 7 percent this year. But how long will the boom continue? Samsung says that worldwide penetration of the gadgets is supposed to reach about 74 percent in 2014. Research company eMarketer Inc. says that growth in the smartphone market will slow each year from 2014 to 2018.
Sooner, rather than later, saturation paired with the ongoing commoditization of most handhelds will mean that mobile-phone growth might go the way of the personal computer and the science oven. Samsung’s stagnation in mobile will likely mirror those trends, but that's not a reason to write off the company's broader prospects.
If you want to take Samsung to task for anything in its mobile unit that has implications for the company as a whole, perhaps it's best to focus on what I can only describe as "Apple envy." Samsung wants to be just as sexy and just as innovative as its wily competitor in Cupertino, California, and it knows that it's not. It seems destined to be a step behind, in part because focusing on fashion, design and sex appeal isn’t in Samsung's DNA.
So let’s hope that as Samsung comes to terms with the recent downturn in its mobile fortunes, it continues to do what it does best: focusing its ample resources and its willingness to gamble on new businesses that promise to deliver rich revenue streams. It doesn't need to be Apple to do that.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
To contact the editor on this story:
Timothy L O'Brien at email@example.com