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Why the Samsung story feels unsustainable?

Posted in Uncategorized by Manas Ganguly on January 3, 2014

Samsung’s Chairman, Lee Kun-hee has upped the ante for the employees for Samsung 3.0 – asking for innovation and software focus. Mr. Lee is quoted saying “Research & development center(s) should work around the clock, non-stop” and that Samsung “get rid of business models and strategies from five, ten years ago and hardware-focused ways.” This comes after the President of Samsung, Lee Sang-hoon, said just in November that the company needed to focus on software quality, as they were severely lacking in quality software when compared to the competition.
2012-13 have been magical years at Samsung, but towards the end of Q4 2013, profit growth slowdown became a key concern at Samsung. The South Korean company is expected to report an operating profit of more than $9 billion for the fourth quarter, according to a survey of analysts. That’s more than the overall revenues of many tech companies, but it represents a 9.2% increase from the same quarter a year earlier. By comparison, Samsung’s profit in the third quarter was up 26% year-over-year. Declining profit growth was a top concern for Samsung for much of 2013.

Are these concerns exaggerated? Or the conglomerate referred to as the Fifth Horseman on the technology bandwagon is beginning to see a slow and consistent decline reminiscent of commodity companies. I think, what we are looking at is a slow marginalization of Samsung through 2014, very akin to Nokia through 2008-10. Here are my reasons

1. At its core, Samsung is a “device” company – the future belongs to those who “own” customers and eco-systems

a. A Google for instance is 40% of the web – mining, indexing customer details and customizing the web for individual customer in accordance making money in return on advertisements

b. Facebook is the social key to a person’s identity on the web. It follows the same principle as Google but it uses the social plank

c. Apple is the innovator – fusing experiences, services, devices, platforms into one seamless continuum. Personally, i think Apple’s innovation is far deeply entrenched than Google – and i await the iWatch to change the paradigm around the user

d. Microsoft is a little over the place and is yet to get its act in place – but it has very strong enterprise roots. How it capitalizes and leverages is to be seen

2. Apart from device dimensioning i.e a bigger screen, a better screen, alternate screen; Samsung has not been a significant force in services, customization, intelligence and experience.

3. Samsung’s OS strategy has also been unclear. It launched Bada – then EOL’ed it. Tizen is yet to find any traction. For all good reasons, Samsung is completely dependent on Android to drive volumes and value.

4. Also Samsung’s innovations have mostly been horizontals – a watch that is an accessory to a smartphone. They miss the whole perspective of wearables as a key to a much larger opportunity in terms of the user per se. That is where Apple is doing the trick.

5. Samsung has not invested in other variables of eco-system – a map for instance, a music service, or enterprise suit, a gaming platform – Remember Nokia did all this and still couldnot leverage itself.

6. Samsung has been working on chipsets – but again, it is the likes of Apple who steal the march on 64 bit chipsets. By the time Samsung gets one of these on road, Apple would have a 1yr of learning and experience driving their subsequent roadmap.

7. Samsung has been an outstanding innovator in touch interfaces… its video of touch centric world says it all

However, outside of its perspectives of touch centred interfaces, Samsung could be missing the other big interfaces of the future and it has made very little advances in other user interfaces – speech, augmented reality, alpha waves etc… (and they seem to be missing it)

… but then as a device maker, is it Samsung’s job to dab into making and owning user interfaces and users? Probably not! But then this is exactly what is required from a technology innovator. Will Samsung make the jump from a device maker to a service anchor – possibly not.

Amidst the device makers – Huawei, ZTE, Lenovo and the likes, Samsung will be miles ahead of the pack – but i am not sure if it could be the mythical fifth horseman of technology as is generally believed. I see a flaw which will make this story unsustainable.

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64 Bit Chips: How Apple out-smarted Qualcomm and Samsung!

Posted in Device Platforms, New Technologies by Manas Ganguly on December 17, 2013

Innovation is the name of the game and none understands this better than Apple. So just when their device and design innovation was hitting the plateau – they got the other enablers firing. The one being discussed here is Apple’s 64 bit A7 micro-processor.

The industry standard in micro-processor is a 32 Bit thingie – which plays in all smartphones. A 64-bit processor handles data in bigger chunks than 32-bit processors, so it can get jobs done faster. PCs have had 64-bit chips for a while, but until Apple introduced the iPhone 5s in September, nobody had put one in a smartphone.

While both Samsung and Qualcomm, both key players in the Android eco-system have the 64 Bit micro-processor in their roadmaps with a Q1 2014 and Q2 2014 time frame of launch – Apple’s Q3 launch of the A7 – puts Apple ahead of its rivals – in terms of perfecting the chip and rubbing off the rough edges. In the past, the iPhone was zippy not because it boasted a super-powerful processor, but because of the way Apple integrated the whole system — hardware and software — and the fact that Apple could tightly control how developers wrote code for the iPhone. An analogy would be a sports car that manages to be fast with a small engine because it is light, well-engineered, and has a great suspension. But now Apple can also claim an advantage in raw horsepower. The new 64-bit A7 chip is the smartphone equivalent of a big V12 engine.

Many in the industry do not still behold the importance of 64bit microprocessor. If the convergence industry is venturing into uncharted lands such as wearables – with different other functions such as Body monitoring or Augmented Reality applications, a higher order chipset will then become the next essential. Apple with its iWatch sees this as the promised land and the 64bit chip as the deliverance and has made the jump. It would have a 1 yr experential advantage with this 64 Bit chip when compared to others. Deep down, I am sure that a 128 Bit Chip could also be in the Horizon.

Q3, 2013 Smartphone Market shares- IDC

Posted in Industry updates by Manas Ganguly on November 1, 2013

The worldwide smartphone market grew 38.8% year over year in the third quarter of 2013 (3Q13), according to the IDC. Thus, a total of 258.4 million smartphones were shipped in 3Q13, establishing a new record for units shipped in a single quarter by more than 9.0%. The previous high was 237.0 million units shipped in the second quarter of 2013. Price points have declined significantly, driven largely by low-cost Android solutions.China has become one of the fastest growing smartphone markets in the world, accounting for more than one third of all shipments last quarter. This trend is expected to continue going forward. The Android smartphone platform has created vast opportunities for new vendors to get into the smartphone space and, in turn, has produced new competitive pressures at the top of the market. Vendors from outside the top 5 continue to control nearly half the worldwide smartphone market in terms of shipments. In 3Q13, Chinese vendors Huawei and Lenovo moved past LG, and not far behind are two more Chinese companies, Coolpad and ZTE. Any of these vendors could change position again next quarter. But in addition to having close shipment volumes, they all have one key ingredient in common: Android. This has been a huge factor in their success, but it also speaks to the challenges of differentiation on the world’s most popular platform.Looking ahead, strong momentum is expected to continue going into the fourth quarter, and another record quarter and year in the worldwide smartphone market. With already strong growth in 3Q13 and multiple vendors launching flagship models, the market will be poised to reach one billion units for the year. It’s a significant milestone considering the market shipped just half a billion units in 2011. Moving forward, what remains to be seen is how the various companies and platforms will stay differentiated and relevant in the increasingly competitive market.

Q3 IDC SP

In the worldwide mobile phone market (inclusive of smartphones), vendors shipped 467.9 million units in 3Q13 compared to the 442.7 million units shipped in 3Q12, representing 5.7% year-over-year growth. Third quarter shipments were up 7.0% when compared to the 437.4 million units shipped in 2Q13.

Q3 IDC MP

Interestingly enough the category of phones apart from the smartphones reduced by 18.4% from 256.5mln handsets in Q3 2012 to 209.5mln Q3 2013. Feature Phones are thus a shrinking category globally!

Will Amazon do a Gillette?

Posted in Mobile Devices and Company Updates by Manas Ganguly on September 7, 2013

Guess the latest gate crasher on the Smartphone party? The rumours have been doing rounds for a while now – But Amazon, the king of digital distribution seems set to take on the likes of Apple, Google and Samsung on smartphones. Amazon already has a current portfolio of Kindle Fire tablets and Kindle eBooks – and is reported closing down on 2 smartphones and 1 audio streaming device.

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One of the devices that Amazon is working on is a 3D screen smartphone. Details are sketchy – but this could be Amazon’s flagship device – with retina movement sensors and a 3D effect overlay.Also of interest is the rumour that Amazon could release a smartphone for its consumers free of charge without a wireless contract. That could be a very significant departure in pricing strategy in smartphones.

The smartphone game is changing. New smartphone entrants Amazon and Google are beginning to generate revenue primarily through e-commerce sales and online advertising, respectively. As such, they are more willing than their competitors to sacrifice device profit for market share and reach to build on their digital distribution networks.

Its interesting to see how the Apples, Samsungs, Microsoft-Nokia’s of the world react to Amazon’s disrupting pricing. Amazon is doing a Gillete with a easy entry price for the razors and making the consumers pay for catridges.
1. The key for Amazon is to establish a user experience and interface so uniquely engaging that users would stayed hooked to it. Associate that to the Gillette shaving experience and how the user was not able to get rid of the Gillette habit and would spend more and more monies on catridges, foams and others… Yes, Amazon must do the Gillette magic.
2. It has the digital content that can upend a lot of device-only players – such as Samsung.
3. Also key to this equation is the reach and penetration of Digital content in the third world countries – it will require a lot of different other monetization models for Amazon to get threshold volumes in such markets.

Apple – Losing its Halo!

Posted in Mobile Devices and Company Updates by Manas Ganguly on August 6, 2013

The Apple board is concerned about its “dry spell” in producing innovative products. Apple has been missing in action for a while – October 23rd, 2012 was the last time, Apple launched the iPad mini. Ever since then the Cupertino giant has been largely missing in action. Twitter and Blogospehere – which was alive and abuzz disecting Apple’s latest launch or new launch have largely falled silent and one gets to read more about Cook versus Jobs comparison which is reminiscent of Apple’s Phoenix tale.

This post is to put Apple’s profiling Apple’s share of problems.

1. iPhone and iPad both played a significant role in its growth since 2009. However there is slowdown in Apple sales and prices have gone southwards for a while now. In other words, loss of momentum. Apple seems to be not only losing its pricing power but also its sales growth despite the lower prices.

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2. Going by Apple’s own statement- the loss in pricing premium and numbers is not just a temporary loss-
“The Company expects its gross margin percentage to be lower in 2013 than experienced in 2012, and the Company anticipates gross margin to be between 36% and 37% during the fourth quarter of 2013. The lower gross margin expected in 2013 is largely due to anticipation of a higher mix of new and innovative products with flat or reduced pricing that have higher cost structures and deliver greater value to customers and anticipated component cost and other cost increases.”
Financials Q3, 2013 (page 30)

12203431-13757222813417823-Vivek-Gupta_origin

3. The decline in numbers can also hurt the iTunes, software and services, and accessories segments.
4. More importantly, the loss in momentum is showing on its technology leadership – and top of the mind recalls. Apple is suddenly a “has been” from “aspirational” and “ahead of the curve”
5. There have been fiascos such as the Apple Maps which have robbed the sheen and the Halo. Apple was never accussed of being a “half baked device/service”

While it is understood that Apple needs to target the China and the SE Asia markets with its low cost iPhone – iPhone 5C which should take on the mid range Androids and Windows Phones – this would translate in reduction of the overall margins. At the same time, Samsung Galaxy SIII has taken over as the Smartphone tops – disrupting iPhone’s positioning in consumer mind as the best smartphone.

Samsung eating Apple’s Profit pie even as the industry gets hammered

Posted in Device Platforms, Mobile Devices and Company Updates by Manas Ganguly on August 5, 2013

Canaccord genuity in its Q2, 2013 Smartphone value share reinforces the change in guard in the smartphone segment. Samsung seems to be riding on its multi-product Android portfolio to fork into Apple’s pie.

chart-of-the-day-oem-profits

Apple has 53% of industry profits (as against 71% last year) and Samsung has 50% (was 37% last year). Samsung keeps gaining quarter on quarter and Apple keeps loosing. While Samsung and Apple generated $5.2 billion and $4.6 billion, respectively, in handset profits in the second quarter, according to research firm Strategy Analytics. By comparison, the mobile division of LG Electronics Inc., the No. 3 smartphone maker, had a $54 million operating profit with a 5.3% share in the latest quarter.The duopoly stands in stark contrast to the long list of companies jostling to establish themselves as a formidable player, including Nokia Corp., BlackBerry Ltd., Sony and LG. Even fast-growing Chinese manufacturers such as Lenovo Group Ltd., ZTE Corp. and Huawei Technologies Co.—all major brands in the burgeoning Chinese market—have yet to prove that they can deliver consistent profits in smartphones.

Will a combination of iPhone 5S + iPhone 5C (Low end Apple iphone) be able to turn it around for Apple? Samsung currently seems to have awesome momentum and might end of taking the No.1 position in Smartphone profits by Q4, 2013.

What doesnot change is that the rest are truely “laid to rest”. From a consumer perspective, this duopoly can be damaging in terms of choices. Device Makers may start throwing in the towel – What with no profits and cash burns. NEC Japan is quitting business.
HTC has reported a 83% drop in profits.

Should Google be worried about Samung?

Posted in Computing and Operating Systems, Mobile Devices and Company Updates by Manas Ganguly on May 21, 2013

Samsung shipped 42% of the Android phones in 2012. HTC was No. 2 at 6%. Samsung is the big Gorilla of the Android kingdom. All others are simply chipmunks. Even while a lot of other OEMs have tried to take the Android flagship – but if there is one line of Androids that goes head to head (and has possibly dethroned) the iPhone, it is the Galaxy series of phones.

So is Google under threat from Samsung? The possibility cannot be ruled out-

• The threat centres on the possibility that Samsung is in a position to demand a greater share of Google’s mobile advertising revenues derived from search and other products.
• Samsung could also follow Amazon’s approach to the Kindle, which forked Android and cut off the core Google apps that generate revenue for the search company.

Google’s acquisition of Motorola Mobility, which makes smartphones and the Xoom tablet, was an “insurance policy” against such an event.Samsung, of course, is also moving to reduce its reliance on Android as Google develops its plans around the rumoured X Phone, with the scheduled release of Samsung handsets based on the Tizen OS later this year.

However, I am of the view that Google should be more worried about the cheap Chinese devices from the sweat shops of Shenzhen. Its not (just) about the consistently lower levels of engagement – a far cry from the Apple iOS. Thats a secondary worry. What should worry Google more is the faceless, nameless $45 commodity Androids. In the last count a third of Gartner’s smartphone numbers were from these small and fragmented device makers. These faceless, nameless Androids (Call them Black Androids) have no monetization value for Google Services – most of them come without a Google Play store.

Beyond the search and advertising revenues that Google makes from Android, there are those bits of signalling data- that the low cost Androids miss out – those valuable bits of information that map the user holistically. A data mine that can be leveraged for data with relevance to the user. The real structural benefit to Google from Android comes from the understanding it gives of actual users, and the threat comes from devices that do not provide this data – a significant portion of the $45 handsets skimp on Google apps just as they skimp on IMEI numbers. These devices are like dark matter: a lot of it around – but nothing really adding up to the worth. It is quite possible that iPhones generate more advertising revenue for Google than all Android phones combined. In that respect 20% iPhones sold globally are more valuable than 70% of the Androids sold.

On a slightly longer term, Android as an open platform may get leveraged across a lot of computing devices – Car consoles, TVs boxes and others without any genuine value addition to Google. Google must have to address this internal risk first!

Even when there is the threat of Amazon or Samsung forking the platform, there is also the threat that an increasing number of Android devices might have no more connection to Google than does an iPhone. That to me should be Google’s number 1 worry!

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Google’s penetration of Android is as important as Android’s penetration of the handset market

Posted in Device Platforms by Manas Ganguly on February 19, 2013

Continued from an earlier post on Android being Google’s best strategic move ever. This Post examines how and why Android undermines the strategic intent of Google in the mobile space.

The best anti-thesis to “Android is selling in huge numbers” is possibly “Android has huge problems in fragmentation” arguement. On a superfical level what this translates to is the consistently lower engagement and monetization of the platform – a far cry from the Apple iOS. Android is the quintessential open source which also means that the Android army stretches from the Samsungs to the Shenzhen sweat shops – the smallest white label OEMs who are fragmenting the low end markets all ends. Samsung’s dominance of Android platform is not the best solution for Google as it struggles with its own line of Motorola Android phones.

Android today is at the same place where Wintel was a decade or two back with an armmy of clones of cheap PC makers churning out tens of millions of cheap commodity PCs. What Android and its eco-system ( Qualcomm, EMP, Mediatek, Allwinner, Spreadtrum) have enabled is a flood of cheap commodity smartphones and tablets. A vast range of other devices ( netbooks, in-car PCs and DVD players, set-top-boxes and lots else besides) following on behind. Often the fragmentation of the Android means a $45 smartphone with no access to Android Play market – but only a way to latch on to the internet. Google thus starts missing out on mapping this strata of smartphone buyers. (Agreed the search would still come through Google).

Compare this with Apple, a $650+ device – bought by a completely different set of consumers to whole experience, exploration and ads make more sense.Thus,it is quite possible that iPhones generate more advertising revenue for Google than all Android phones combined. In that respect 20% iPhones sold globally are more valuable than 70% of the Androids sold.

Beyond the search and advertising revenues that Google makes from Android, there are those bits of signalling data- that the low cost Androids miss out – those valuable bits of information that map the user holistically. A data mine that can be leveraged for data with relevance to the user. The real structural benefit to Google from Android comes from the understanding it gives of actual users, and the threat comes from devices that do not provide this data – even though theoretically, it can still leverage Google search. A significant portion of the $45 handsets skimp on Google apps just as they skimp on IMEI numbers. These devices are like dark matter: a lot of it around – but nothing really adding up to the worth.

Benedict Evans does a very accurate description of the Android platform- Very powerful but spiralling semi-randomly with no clarity on where it would land. Even when there is the threat of Amazon or Samsung forking the platform, there is also the threat that an increasing number of Android devices might have no more connection to Google than does an iPhone.

To put that another way, Google’s penetration of Android is as important as Android’s penetration of the handset market.

Modern day Dell? Or Sony? Or is there something more to Samsung?

Posted in Industry updates, Mobile Devices and Company Updates by Manas Ganguly on January 15, 2013

Q4, 2012 revenues- $52.7 bn, profits- $8.8 bn.CY 2012 revenues – $188bn, profits- $27bn.

Samsung is on a roll and having thumped Nokia four quarters back, Samsung is taking the fight to the mighty Apple. Samsung is already the no.1 Mobile phone maker and smart phone maker globally. Also, its foray into Smart Cameras and Refrigerators have altered Samsung’s position from a Fast Follower to a Technology Leader in the Industry! 2012 has been very productive for Samsung as it seems to have a transition from a moderately successful electronics Chaebol to the leading non-iOS device maker. Interestingly enough Samsung and Apple make 104% of the Mobile devices profits – leaving no headroom for any investments from any other Mobile device maker. Samsung’s relentless progress in the Mobile-tech sector over 2012 have christened it as the Fifth Horsemen – next to Google, Apple, Amazon and Facebook. (and I am shocked by the absence of Microsoft in that list by MG Siegler).

The Fifth Horseman- Samsung!

Even while Samsung has made its modest efforts to extend its run in smartphones to Smart TVs, Smart Cameras and Smart Refrigerators – the key to Samsung is and will remain to be smartphones. If smartphones as a device follow the PC/Laptop route – i.e only incremental changes and no quantum leaps- then Samsung will end up the HP, Compaq and Dell route – where these players kept producing laptops until laptops became redundant – due to the advent of Smartphones and tablets (Handhelds is the industry terminology). Those profit figures will be difficult to emulate year on year in horizontal device domain.

Currently, at this point of time, Samsung seems to be going the Sony Way – Like Sony had the Walkman, the Bravia TV, Sony Music system, Vaio laptops, Mobiles & Smartphones, Cameras and other very strong sub brands in the consumer segment and has been largely unable to piece it together in a coherent strategy. The lack of this coherence was what has led to the slow skid at Sony. Samsung similarly is invested in a dozen and more device categories – TVs, Mobiles, Tablets & Smartphones, Laptops, Cameras, Refridgerators, ACs and Washing systems and in the current context is seemingly trying to put all these devices in the connectivity era. However, that is nothing more than just a smart tactical move – and Samsung knows this. Samsung’s dilemma is about not being able to marry these disparate components into one converged strategy.

(to be continued)

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Connected Camera Begins!

Posted in Mobile Devices and Company Updates by Manas Ganguly on December 9, 2012

The headline reminds me of “Batman Begins!” – 1st part of Christopher Nolan’s Batman trilogy.

However, unlike the Batman series which made some epochal contributions to the world of movies – the Samsung Galaxy Connected Camera (Even while it breaks new ground in Camera connectivity to the Internet), isn’t essentially a breakthrough device in terms of the value that it brings to the customer. It does bring a novelty and innovation tag to Samsung – which is now exceeding itself and transforming itself from a Fast Follower (Read Apple) to a Innovator.

Firstly the specs and features and there isn’t much reading here- Clearly Samsung has extrapolated its competency in the Galaxy smart-phone and leveraged it to bring forth a device that centers on the Camera and the Networked. The device by itself is a smart looking thingie and from what the initial reviews say – it is dimensionally/ergonomically easy to carry around in the pocket.

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Now then comes the all important question of how this device is positioned and will it be able to cut ice in a melee of converged devices. The key is convergence – and if the trend from EBook readers and MP3 players is read through – both these stand alone (single/dual function boxes) do not quite run the favor of customers. Both EBook readers and MP3 devices are onwards a gentle decline which in product marketing terminology would be branded as End of Life. The vote goes to the converged set of devices – which is this case is the smart-phone. The new converged devices pretty much does the same as compared to the connected Camera along with other moves such a music, gaming, browsing, calling, texting and more.

A critical component of the Productization and Penetration process is the Price. Priced at Rs.29999 (Rs.29850 on deals), the Connected Camera is dearer than the entry level DSLRs. A DSLR is a semi professional device that the connected Camera intends to substitute. However, DSLRs are much more versatile in terms of the Imaging technology – a touch screen camera with Applications is an interesting substitute- but there is nothing that can beat the concept of changeable lenses that the DSLRs provide. Thus the Connected Camera will not be a semi-professional/professional’s device of choice.

In effect, Smartphones will continue to rule Casual Imaging and DSLRs will rule the professional imaging – Thus leaving the Connected Camera with fewer options exceot perhaps a geek (with money) who just wants the device for the sake of having it.Bottomline – I dont see the Connected Camera carving out a niche for itself.

Thus the Connected camera to me is about Samsung’s coming of age on devices- the benefits in terms of capability and competency enhancement will accrue to the Galaxy Smartphone in its imaging division – a great way to take the challenge to Nokia Pureview.

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