Mobile Phone Life Cycle
Samsung Electronics is a semiconductor mobile phone and mobile phone component manufacturer. It exists in the most dynamic end of the consumer product industry. It cannot succeed without continuous incremental improvement and without constantly updating its product portfolio.
The product life cycle for its premium product the Samsung galaxy S3 is estimated to be only 9 months. This occurs because customers withhold purchasing a product for which they know is going to be updated and replaced imminently.
Samsung is a conglomerate in multiple markets, with the main profit centres being mobile telecommunications and information technology manufacturing. Samsung has posted record profits in its most recent financial quarter. Samsung is a dynamic but reactionary company; it emulates innovations by other manufacturers such as Apple but it operates in a marketplace where such things are common. It manufactures components for most other manufacturers of mobiles tablets and PCs. Samsung has an adversarial relationship with Apple who is Samsung’s both Samsung’s main competitor in mobile telephony and one of its biggest customer’s.
Samsung has an advantage over Apple at present in that it has the infrastructure and dynamic capability to manufacture the components required. This leaves its main rival Apple requiring Samsung’s co-operation. Samsung is seeking to increase the price which it charges Apple. Strategically this is a wise option as switching costs for Apple essentially having to retool its entire operating network and refresh its product’s. Samsung is a company that prefers to grow organically. It has been suggested that the firm engage in a purchase of Blackberry maker Research in Motion. This would be characterised as a defensive acquisition.
It would be merely adding to its portfolio of assets and gaining ownership of a mobile operating system. Currently it licences the Android from Google. Samsung has a strong diverse product portfolio and is capable of competing in numerous markets from the low end smartphones to the Premium Galaxy range; Samsung has a product for every possible price point. Samsung partners with other providers and builds phones and other devices for them such as the Google Chrome book. In an industry where there are numerous rivals and whereby Product Life Cycles are becoming progressively shorter.
Samsung has an advantage in that as a semiconductor manufacturer it can respond to changes in the market dynamic quicker. A disadvantage for Samsung is that is does not have the same prestige as Apple and therefore cannot charge such premiums for its products. Samsung has to offer more at a lower price point than Apple does for its competing products. Samsung’s flagship Galaxy Range has 2 rivals for Apples iPhone the Galaxy S3 and the Galaxy NOTE 2. These combined even though they are of similar quality and differentiated towards different market segments than the iPhone 5 sales are still less than Apple.
Could Samsung drop the Samsung nomenclature and market its high end models as Galaxy? This could enhance the appeal of the high end premium line. In the technology business Samsung is a rare beast in that it rarely makes acquisitions. Very few technology acquisitions are deliberately earnings generative. Facebook buying Instagram and Microsoft buying Skype are considered to be primarily defensive plays to enhance and protect certain advantages each of these companies had. Samsung could purchase a rival chip maker, though logistically and practically there would be little point in doing so.
Another concept potentially to consider would be merging with Google to create an all in one hardware and software company. While logistically this would be the ultimate defensive move by both sides, it would be very difficult integrating the different business cultures it would probably mean that Samsung would have to move its headquarters to the U. S. A. A merger to companies that are on friendly terms as it is would certainly produce synergies in financing, but as they both maintain large cash piles that are increasing every quarter it doesn’t seem that the risk would be worth it.
Another option for Samsung would be Nokia this would give Samsung 30 per cent of all the patents for 4G networks which would give the firm a significant royalty stream from every 4G enabled phone worldwide over the next 8 to 10 years which is the expected length that 4G will remain as the most modern network. Samsung will however be paying for a brand name and significantly weak company . It would also have to fend off rumoured interest from Microsoft. It would be a costly acquisition at 30 billion dollars given the Market Capitalisation of Nokia today and the required premium with which would be required to be successful.
Samsung could use its partnership with Renault Nissan in the automotive industry to create a suite of products automatically synchronised with the car. This would be similar enough the Tesla Model S. While this is a left-field suggestion it is leveraging assets that Samsung already has and utilising it in order to serve its main Profitable arm. This allows the firm to gain a competitive advantage over its main rival Apple. The struggling Nippon-French automobile manufacturing partnership might also be receptive to an outright takeover by Samsung.
Samsung has heretofore been a trend follower, albeit a very adept and nimble one. It hasn’t necessarily been the most innovative company, however with product life cycles getting consistently smaller and the competition which Samsung faces at all ends of the market from the low end to very top is also getting more innovative. Samsung is one of only a small number of companies that could redefine the market. It already produces Smart TVs in large quantities. It could start selling phones laptops and tablets TVs in large bulk quantities by already pre synchronising them for customers.
Its steps like this that will put it ahead of its main rival Apple which is rumoured to be introducing a television that is expected to permanently alter viewing experience. In order to successfully manage this transition Samsung would have to be ahead in the U. S. A first and foremost. Gaining access to material is what blocked Apples entry into this new market. Aggressively Samsung could purchase a cable company or Netflix and control this content for itself, gaining such an imperative competitive advantage.
Samsung if it wanted to be aggressive could stop supplying Apple severely hampering its main rival’s operations while aggressively increasing market share elsewhere by undercutting Apple. Another strategy would be to introduce a phone that would have enhanced abilities i. e. a class above its premium Galaxy range and equivalent iPhone 5 and Google Nexus 5. This would entrap Apple in a Pincer movement that would allow Samsung to be effectively the supplier of the latest accessory mobile phone, which at present is the iPhone 5 rather than the equivalent S3 and Note 2.
The other strategy is to remain second the mobile phone market and a distant competitor to Apple in the Tablet market, this is the most conservative option and requires the least capital outlay, however it risks being overtaken in the same way Nokia was. In the technology market an aggressive approach would be beneficial, but as the relationship between Google and Samsung is seen as quite good the optimal strategy would be to jointly design products that would create a short term monopoly , such things exist in a world where second best is very often a distant second.
Utilising inherent dynamic capabilities it was Apple who was playing catch up to the S3 and Note 2 but the iPhone 5 is outselling both products collectively, this could be because of the inertia derived from being introduced to a particular eco-system, in this way Apple has a first mover advantage in that it has a lot of loyal clients. Samsung primarily operates on Google’s Android operating system which is compatible with other Android users such as HTC and LG. At present Android has 68% of the market but the high margin clients have primarily tended to purchase Apple products.
This is an issue that is only further compounded by time. In order to overcome this Samsung would have to be overly aggressive on a pricing strategy for a phone that would be significantly more advanced than its predecessors and its rivals. Samsung Electronics as a whole is a diversified technology company that should continue to grow unless it commit’s the cardinal sin of failing to innovate. It is a buy but it will have to alter its practices if it wants to surpass Apple’s profitability. S. Decker, 2012 Samsung Gets Review of Loss to Apple in U.
S. Patent Case http://www. businessweek. com/news/2012-11-19/samsung-gets-review-of-loss-to-apple-in-u-dot-s-dot-patent-case Last Accessed 20/11/12 11. 25 http://www. investopedia. com/terms/d/defensiveacquisition. asp#axzz2ClJTl2OX Last Accessed 20/11/12 11. 30 Sam Grobart, 2012 Samsung’s Four (Easy) Steps to Mobile Dominance http://www. businessweek. com/articles/2012-11-19/samsungs-four-easy-steps-to-mobile-dominance Last Accessed 20/11/12 11. 30 Samsung Annual Report 2011