Samsung plans to smash Android rivals..what about the iPad?
Competitors and Apple should prepare for war
The most dramatic aspect of the smartphone market in the second half of 2010 has been the reinvention of Samsung. Samsung's Galaxy S has shipped 7 million units and has set targets of 20 million for this year – plus one million tablets.
Always a powerhouse in mass market handsets and feature-packed media phones, the Korean giant was still the ugly duckling of open OS smartphones. But the success of its Galaxy S Android range, and to a lesser extent the Wave, which runs its own bada OS, have turned it into a swan that is giving Apple a run for its money in terms of mobile allure – and aims to have the same effect in tablets.
Samsung is targeting over 40m unit sales in this category next year, according to mobile division chief Shin Jong-kyun. He told the Nikkei business daily that Samsung is targeting 20m smartphone sales worldwide this year and double that figure in 2011. Both forecasts are improvements on Samsung‟s original goal, articulated when it unveiled Galaxy S, when it said it would sell 18m this year. However, it is being slightly more cautious than in September, when it said 2010 would see 25m shipments, rather than the vaguer “more than 20m” of Shin's interview. By the end of 2011, however, the firm expects to have double-digit smartphone share, though still lower than its overall handset share of 20 per cent and rising.
It plans to have a far earlier start in tablets than it did in smartphones, where it missed the boat for the first couple of years and then launched an underwhelming Android device, the original Galaxy. In tablets, Samsung will use the same tactics to eat away at the iPad's lead as it has in smartphones.
Most importantly, these are control of key components, which gives it design flexibility and cost advantages; and a strategy of spreading the brand far and wide with many product variations to suit any user base. These two approaches, together with a hefty investment in marketing and carrier partnerships, have delivered 7 million unit sales of the Galaxy S family since its launch in July, 3 million in the US, where Samsung has particularly been associated with low-end models.
The battle with Apple
So far, much of the impact of the Galaxy S will have been felt by other Android vendors such as Motorola or Sony Ericsson, whose smartphone growth has been slower than Samsung's. However, Apple is starting to lose some ground to the Google platform too, and the Korean OEM's advantages make it the most dangerous of the Android OEMs to the iPhone.
It has even greater economies of scale and purchasing power than Apple does. Like Apple, it has a level of control of its supply chain that promises cost efficiency and design innovation. Ironically, its sister company Samsung Electronics, provides Apple's distinctive apps processor, the A4, which is almost the same as the Hummingbird it makes for Samsung Mobile. But both OEMs have powerful control over their processor evolution and its optimisation for their software platforms.
Both are also heavily focused on a differentiated touchscreen display. Samsung has Super AMOLED, a technology only currently made by another sister firm, Samsung Display, and for now exclusive to Galaxy and Wave. Apple, meanwhile, has responded to shortages in AMOLED technologies by touting the benefits of advanced LCD alternatives, and also has an exclusive screen, RetinaDisplay, made by Sony. (Not that either manufacturer is immune from the component shortages that have dogged handsets since the market recovered. Both say they would have sold more of their flagship smartphones if it were not for shortages, and Samsung has had problems getting sufficient Super AMOLED screens from its stablemate firm. "We're in a situation where we wish we had more supply," said US CMO Paul Golden.)
If the two phonemakers are head-to-head in component terms, they are different in two important ways that will help define their success in future. First, Apple has a control over the direction of its software platform and user experience, which cannot quite be matched by a vendor relying on an open OS, however glossy the UI overlays and app stores it puts on top (though Samsung does have Apple-like grip on bada, which will be important in the growing mass market smartphone segment).
Second, Apple basically has one product. The iPhone design and user experience have been enhanced over its four generations but not changed radically, and the iPad is basically a stretch version.
This "take it or leave it" approach can only work for a supplier whose single platform is as beloved as that of Apple, but the vendor does run the risk of adapting too slowly should its product start to look like yesterday's news amid the waves of smartphone and tablet innovation. For instance, CEO Steve Jobs' vitriolic refusal to consider a 7-inch variation of the iPad suggests an unhealthy refusal to imagine that non-Apple formats could possibly be attractive – an attitude increasingly reminiscent of Microsoft at its most arrogant.
By contrast, Samsung is succeeding by tweaking its basic design to give something unique to each carrier and user profile. Galaxy S launched with four brand names, all with slightly different feature sets, in the US alone, one for each national carrier. Since then, US Cellular has added a fifth variation, the Mesmerize, and this week, Verizon Wireless launched its second Galaxy S family member, the Continuum, which boasts a second AMOLED screen for real-time updates such as social networks or news feeds. MetroPCS is even hinting it will soon have an LTE version of Galaxy S.
This constant barrage of design tweaks manages several feats that are not possible for vendors of lesser scale and resource. It enables Samsung to launch with large numbers of operators, rather than confining itself to a few channels. It also offers them some differentiation, to guarantee its phones a higher position on the carriers' shelves and marketing campaigns. It also allows the firm to continually push something "new" to keep users' attention and perhaps attract customers with a particular feature, such as the Continuum updates screen. But most of these innovations are trivial in terms of the added cost of development, manufacturing and marketing that they represent, keeping Samsung's economies of scale and margins almost intact.
The tablet market
This is rather like the Nokia approach to featurephones, which stood it in good stead for so long, but applied to high-end models, and Samsung will also extend the strategy to tablets. Shin said the firm was preparing to follow the Galaxy Tab with models with various screen sizes between seven and 11 inches and probably even larger, and the firm expects to sell 1 million Tabs this year.
One of the attractions of the tablet market is that, for a vendor of high-end smartphones, the design and component requirements are similar. This shortens the learning curve and allows for significant crossover in the supply chain, a factor that is helping to drive early price competition. The fact that the tablet is not a huge shift in thinking for manufacturers lowers the barriers to entry for companies such as Apple and Samsung, which can build extensively on their existing smartphone platforms to get products to market quickly and cheaply. Most of the radical aspect of these gadgets lies in the usage patterns they support, not their actual hardware.
This is seen in the heavy overlap between Samsung's component list for Galaxy S and Galaxy Tab. The Tab has a bill of materials far closer to that of a phone than an advanced consumer media product. According to teardowns by iSuppli, its BOM is $205.22, far less than the $264.27 figure for the 3G, 16Gb iPad. This is partly because of its smaller display, and partly because of Samsung's huge purchasing power for components that also appear in Galaxy S and/ or Wave.
“The Galaxy Tab really is a larger version of the Galaxy S,” said iSuppli principal analyst Andrew Rassweiler. “While the design approach makes the Galaxy less expensive to produce than the iPad 3G, its screen resolution and size are not at the same level as the iPad.”
However, the Tab also has some features the Apple rival lacks, such as a gyroscopic MEMS sensor for gaming functions, Flash support and a secondary, front-facing camera. Both the Tab and the S use the same 1GHz Hummingbird processor and Infineon baseband, and have many other elements in common – though not the screen, which is LCD-based. Better availability of Super AMOLED and larger screens should allow Samsung to offer a tab- let next year with its trademark super-bright technology.
So, Apple's huge buying power and efficient supply chain control usually give it an advantage over smartphone rivals, which do not have its broader product range adding to its economies of scale. In media players, for instance, Android vendors have so far failed to match the pricing Apple can put on iPod and iPod Touch, especially in a segment where higher prices are not shielded from the consumers by carrier subsidies. But in Samsung, maker of everything from TVs to netbooks to MP3 players – but not, until this year, credible smartphones - it has more than met its match. The Korean firm's activities stretch across the electronic products spectrum and in chips, screens and memory. This could be a battle of the giants that leaves the other smartphone/tablet majors sitting helplessly on the sidelines.
Copyright © 2010, Wireless Watch
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