Tags: samsung | apple | rival

Samsung's Big Idea? Upsetting the Apple Cart

Tuesday, 18 Oct 2011 01:07 PM

 

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Just a few doors down from the Apple store in Sydney, where a long line of fans eagerly awaited the sale of the new iPhone 4S, another throng was gathering at a Samsung store.

Samsung was ambushing Apple at a temporary "pop up" store offering its new Samsung Galaxy S II smartphone for just A$2 to the first 10 customers each day in the run-up to the rival iPhone launch.

The guerrilla marketing tactic is the latest flare-up in the intensifying competition between two of the biggest players in the mobile devices industry that has also seen them battle in courts across the world over patents.

What makes the battle so captivating is that the two companies are such contrasts. Apple is known for innovation and big ideas that create whole new markets. What Samsung lacks in ideas, it makes up for with a sleek production system that is lightning fast in bringing new products to market.

Still, Samsung Electronics delayed the unveiling of its latest smartphone, the Nexus Prime, by a week to Wednesday as a sign of respect following the death of Apple's co-founder Steve Jobs -- Apple is Samsung's biggest customers for microprocessors.

The Nexus Prime has been much anticipated because it is based on the latest version of Google's Android operating system, named "Ice Cream Sandwich" after previous versions also named after foods, such as Gingerbread and Honeycomb.

But the war for smartphone dominance is one Samsung appears to be winning for now, just. Third-quarter figures are expected to show it has overtaken Apple as the world's biggest smartphone vendor in terms of units sold.

Apple, the world's largest technology company with a market value of $391 billion, is counter-punching hard as the holiday sales season approaches.

It is expected to present a positive short-term picture -- sparked by roaring sales of its iPhone and iPad -- when it reports results for the July-September period on Tuesday. The company moved 4 million iPhone 4S units in three days -- more than double its predecessor -- despite lukewarm reviews.

"The quarter we are focusing on is the holiday quarter," said Channing Smith, co-manager of the Capital Advisors Growth Fund, which owns Apple shares. "We expect Apple to absolutely blow the doors off during Christmas."

The battle between Samsung and Apple is being waged not just in malls and stalls across the world, but in courtrooms as well.

On the same day Samsung was luring away potential Apple customers in Sydney with the Galaxy promotion, an Australian court slapped a temporary ban on the sale of Samsung's computer tablet, named the Galaxy Tab, in the country, saying Samsung infringed on Apple patents.

Apple has also scored preliminary injunctions against some Samsung products in Germany and the Netherlands, and seeks to block sales of Samsung models in the United States, the key smartphone battleground.

Samsung is trying to counter with lawsuits of its own, unsuccessfully so far, accusing Apple of infringing its technologies.

FAST EXECUTIONER

Analysts who follow the company say Samsung may not have the next big idea but it does have world-class marketing chops.

The world's biggest maker of flat screens and memory chips and the second-biggest mobile phone maker after Nokia can bring a product to market faster than anybody. Samsung can leverage costs by using the chips and screens from its other divisions in its products. It has unrivalled product differentiation, offering different phones for different market segments.

But while Samsung has shown it can beat Apple in the market, few are convinced it has the innovative corporate culture to be the next Apple.

The conglomerate's legendary founder Lee Byung-chull set up Samsung Electronics in 1969, producing black-and-white TVs that he supposedly learned how to make by tearing apart a Sony. Apple claims in its lawsuits that the Galaxy lineups using Google's Android platform copied the look and feel of its iPhone and iPad.

"Koreans are great at reverse engineering," says John Strand, founder of Danish telecoms consultancy Strand Consult.

Samsung's corporate culture values speed and adaptability, aspiring to be what they call in Korea the "fast executioner."

"But to capture the imagination of the public in the way the iPhone or iPad have done, Samsung will need to take risks and produce something unique that has a true 'wow' factor and be first to market," said Tim Shepherd, an analyst at Canalys, a technology focused research firm.

TECHNOLOGY AGNOSTIC

Samsung doesn't just rely on Android. It is technology neutral, jointly developing software with Intel, using Microsoft's Windows, free software Linux and its own operating system, Bada, in its phones. Its vertically integrated supply chain of chips and displays also helps it better control production costs.

"With eggs in all baskets, Samsung is poised to be the long-term winner regardless of how the dynamics play out between technologies and standards," analysts at Bernstein said in a report. "Samsung is unique among leading manufacturers of being extremely 'OS-agnostic'," they said referring to operating systems.

One Samsung executive helpfully suggested that Apple might want to copy the Korean company.

"What Apple might want to pursue is ironically what Samsung is doing right now: Keep introducing differentiated products to cater to the very low end of the market to the very top," said a senior Samsung official, who declined to be named because he was not authorized to speak to the media.

"We may have looked foolish by not focusing on just one mobile platform and instead spreading our resources for the time- and labor-consuming work of making phones with various platforms, but it showed patience eventually pays off."

Samsung's speedy ascent to the smartphone summit came after the company was sent reeling by the storm Apple created over the launch of the iPhone 4 and the iPad early last year. Profit halved in the second quarter last year because it didn't have products to compete with the iPhone 4 and the iPad.

But it caught up fast. Samsung released an upgraded version of its Galaxy S smartphone with improved processing power in April, less than a year after it was first introduced, making it also bigger but lighter. Months later, it unveiled upgraded versions of the Galaxy smartphone, running on the fast 4G network with a high-resolution display.

The company was also first to challenge the iPad with different sizes and is now the No. 2 tablet vendor.

Samsung sold nearly 20 million smartphones in the second quarter, about one million fewer than Apple. Its market share gap was less than 1 percentage point.

But Samsung is expected to sell 95 million smartphones this year, higher than Apple's 81 million, and raise sales to 136 million versus Apple's 89 million units next year, JPMorgan analysts forecast.

By comparison, Apple's latest iPhone followed 15 months after its previous model and had no facial changes, disappointing investors and fans who had hoped for a fancy and thinner product with a bigger screen and 4G connection.

"If users are concerned about being 'future-proof' from a network technology point of view, Samsung clearly has a marketing edge at the moment ... Samsung has a strong ability to release competitive new smartphones on a timely basis," Fitch analyst Alvin Lim said.

CLEAN, CLEAR, COLOURS

Just listen to Michael Santos, an iPhone user for the last two years. The 22-year-old is about to abandon his iPhone after spending the past half-hour in a Samsung store in Singapore playing with the new Galaxy S II.

"The screen on the Galaxy is high resolution, much clearer, cleaner and the colors are brighter," said Santos, a student on a holiday in Singapore.

The Galaxy S II uses Samsung's own dual-core application processors, cutting costs there. It is slimmer and has a bigger display than the iPhone 4S and is being sold through around 140 operators in more than 100 countries.

Choice, and lots of it, has been key to its success.

"The secret to Samsung's success is strength in depth," said Geoff Blaber, analyst at London-based mobile consultancy CCS Insight. "Samsung is competing aggressively -- from pre-pay right up to the high-tier, where the Galaxy S II has arguably gained most from Nokia's slide in market share."

"Words once solely used to describe Nokia are now applicable to Samsung. Scale, distribution and supply chain are interdependent elements that Samsung has mastered to drive both profit and volume," he said.

Analysts say smartphones now account for one-third of Samsung's handset portfolio, up from 26 percent in the second quarter and 12 percent a year ago, lifting the profit margin of its overall handset business to around 14 percent.

The iPhone, introduced in 2007 with the touchscreen template now adopted by its rivals, is still the gold standard in the smartphone market.

But phones based on Android, which is available for free to handset vendors such as Samsung, HTC, LG Electronics, Motorola Mobility and Sony Ericsson, have come to dominate the market.

Consumers of Android-powered smartphones tout its customization, price and also the fact that they do not need to synchronize their devices with a computer like users of Apple's

operating system.

Samsung may not have come up with the concept but it has adapted Apple's breakthrough smartphone idea perhaps better than any other handset maker. It tries to offer the Apple experience at a better price with better functionality.

That was why Cho Su-ah, a college student in Seoul, picked Samsung over Apple.

"I was attracted to the iPhone 4 more since many of my friends have it and I could get a lot of help from them if I needed. Also, as a girl, I was attracted to the cute design of Apple," she said.

"But my thoughts on Galaxy changed after a few days of using it. Since it's a Korean phone I could get technical help much more easily than I would have with an iPhone. And although people said the Android market has fewer applications, I didn't have any trouble finding applications I wanted."

© 2014 Thomson/Reuters. All rights reserved.

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