[Editorial] Samsung Bombarded; Display Sales Down, Profits Slide, Lawsuits Galore

[dgstorm]

It seems for Samsung, the old adage, "when it rains it pours" holds some validity. Looking back, I remember at the end of last year, Samsung was riding high on the fact that their Galaxy S line of phones were dominating the smartphone scene. At that time, they had some huge plans, and made some bold claims. Perhaps that "hubris" is coming back to bite them, and is providing a harsh lesson, or perhaps it isn't really fate or karma, just the dynamic nature of "free enterprise". Regardless, right now, Samsung is being assailed from all sides by a slew of harsh realities, and I thought it would be interesting to dive into the mess and discuss it further.

Let's start with their latest bit of bad news. A recent report from Samsung indicates that their profits are down company-wide by 26%, primarily due to fallen LCD display sales and weak semi-conductor sales. Their only bright spot is that their phone division is still turning a profit, although even that could be hampered, because of the delay of the Galaxy SII to the United States. This comes on the heels of several other harsh events bashing away at the tech-giant. Let's list them all for easy reference in no particular order:

1. Reduction of company profits down $1.1 Billion Dollars due to reduced and weak sales in display business and semi-conductor business.
2. They can't get their Galaxy S II phones to the Unites States because of tougher negotiations with carriers that are already flooded with dual-core devices.
3. Microsoft enforcing Android device patents to the tune of $15 dollars per device sold.
4. Multiple injunctions from Apple with the US International Trade Commission trying to block Samsung's Phones and Tablets because Apple believes they are "copying" their designs.
5. Multiple Lawsuits from Apple trying to block Samsung's Phones and Tablets because Apple believes they are "copying" their designs.
6. Apple (Samsung's biggest customer) may drop them due to all these lawsuit issues.

To put things in perspective, here is a quote from Kim Sung In, a Seoul-based analyst at Kiwoom Securities Co,

“Only the phone business is holding up. Everything else is looking bad. There’s no bright picture for the company looking ahead.”

That's a pretty bleak outlook, and after reading and writing about all these events over the past few months, I wanted to chime in on the subject.

In the past, I have seen many people with varying perspectives on Samsung. Some people are big fans of the company. I can probably count myself among them. I own/have owned many Samsung products. I currently own a Samsung Home Theater System that has been an amazing product for the last 9 years I have owned it. Further, I also have a Samsung LCD TV that I bought several years ago, and it has held up well too. I have owned a few Samsung products that failed too. I had a 19" LCD monitor that died after the warranty period. Furthermore, I have owned some Samsung "feature" phones, (long before smartphones even existed), that got replaced by other brands for various reasons. Ultimately, my experience with the company has been primarily a good one, and I know other people with the same perspective.

On the other hand, there was a time earlier in the year, when many folks were upset at Samsung for some of the draconian policies with their smartphones, and some instances of poor customer service. This was also around the same time that Samsung was doing really well with their Galaxy S line of phones and portrayed an almost arrogant attitude toward the markets and their customers. I can see how this might have "put off" many consumers toward the company. At any rate, regardless of whether their current situation is deserved or not, it seems to me that it is an unusual occurrence to see a company of Samsung's size and caliber have so many negative events bombarding them from every side.

Ultimately, Samsung is a large enough international corporation that they will probably be able to fight through this onslaught of bad situations and come out just fine. Also, it may give them a better sense of purpose and make them stronger in the long run. Perhaps it will even endear them to their customers again, so they won't lose site of what really keeps them in business. Further, it is even possible that many of these "stumbling blocks" will be turned into "stepping stones". It's possible that Apple and Samsung will come to some sort of agreement and continue their long-running partnership. And, in all likelihood, Samsung will finally get the Galaxy SII phone here to the States and it will generate some much needed profits to help them retool their display and semiconductor divisions.

What do you guys think of what is happening with Samsung? And, what do you think will be the probable outcome in the end? Could this be the beginnings of their downfall, or just a small chapter in their story? How many of you own, and would buy Samsung products in the future? Finally, who has been holding out for the Galaxy SII?

Picture & Fact Source (for Sliding Profits Portion): BGR

 

[strider_mt2k]

They dug too greedily, and too deep...

 

[Northhill]

As a regular Samsung customer I found your reflections on the prospects of the company an interesting read. However, I think you forgot somewhat also to include the good news. I recently bought the new Galaxy S II phone, and I must say it's really an amazing product, and I'm apparently not alone in thinking that, reviews are very positive, and in a couple of months they have already sold 3 mio. of them - even though they apparently haven't gained access to the US as yet. I also use Samsung netbooks/laptops, monitors, televisions, harddrives and bought their first tablet - the 7 inch Galaxy Tab. I have been very pleased with that tablet, and being launched at the same time as the Ipad 1 it really differentiated itself from the Ipad - different format and improved options (MicroSD slot, 16:9 format, camera etc.). However, I am probably going to replace it with the Asus Eepad Transformer instead of the Galaxy Tab 10.1 - why? Because the Eepad represents real innovation and differentiation by combining the tablet- and netbook concept, whereas the Tab 10.1 seems like Samsung wanted to make a copy of the Ipad 2, just marginally improved in some areas. Just as with their new Series 9 laptops which are more or less copies of the Macbook Air. So in that sense I understand the lawsuits of Apple - and it's interesting they didn't suit Asus for the transformer! With the Asus you get much more functionality for a much more competitive price - with the Tab 10.1 you have to buy a MicroSD dongle, a HDMI dongle, a keyboard as extra accessories - making the total real price much higher. And finally Samsung seems to have production problems - it has simply taken them far too long to get their new tablets on the different markets. So from a customer perspective Samsung has got some issues in the tablet area, and they should change their approach. I have experienced for example in the netbook area that Samsung really now how to innovate to the huge benefit of their customers. They should focus on that also in the tablet area instead of trying to make an Android Ipad replica. Come on Samsung, you can do much better than that! And then - please get your products on the market in time! However, having said that I'm quite confident that Samsung will survive the present difficulties - and I hope so, because it would really be a pity not to have their many great products on the market.

 

[adaaaam]

I have only ever owned two Samsung devices: a Virgin Intercept and my current Galaxy Indulge. Both take forever to bootup and tend to lag under slight pressure. I suppose since they make so many products that their QA is spread too thin. Samsung's strength may be their smartphones within their company's product line, but realistically, competing Android phonemakers such as HTC definitely make better quality smartphones, due in no small part to their respect for us customers.

 

[OffWorld]

I generally have a good opinion of Samsung products. I'm using a Samsung monitor right now, which was recently repaired under warranty. I suppose you could argue it shouldn't have needed a warranty repair in the first place though.

Samsung's real problem is that they have arguably blatantly copied Apple's product and packaging designs. Look around these forums and you'll see plenty of us who own knock-off versions of name-brand devices (what some people call KIRF products - "Keepin' it Real Fake") manufactured by unknown Asian electronics manufacturers. You would think a company like Samsung would be above that sort of thing, but they either lack creative talent inside their company or it was a calculated move to capitalize on the success of Apple's designs (the side-by-side product and packaging comparisons I've seen in articles about the infringement lawsuit are frankly pretty damning for Samsung). I've seen a lot of people casting Apple as the "bad guy" in this lawsuit business, but Apple holds a lot of patents and trademarks related to their products and even their packaging, and the law requires them to aggressively defend their intellectual property or risk losing their exclusive claims to it. If the lawsuit goes to court I'd expect some of Apple's patents and trademarks could be invalidated, but I also have little doubt Samsung would find themselves found guilty of copying Apple's products and packaging.

As for the future business relationship between Apple and Samsung I think they can kiss that goodbye. Samsung has primarily been supplying chips to Apple. Industry insiders say Apple has been approaching other chip manufacturers and a while back Apple made news when it went on a hiring spree of chip engineers that prompted speculation their existing chip suppliers' days were numbered.

I guess the real measure of whether Samsung will survive this onslaught is just how much they end up paying in damages for the KIRF case and how much of their revenue was reliant on being a supplier to Apple. Products and packaging can be redesigned and they'll probably have to in order to stay in business. They may want to hire a few more original designers of their own though, since it's pretty clear they won't be able to crib from Apple's anymore.

 

[Entropy]

I don't see how Samsung has copied Apple products. There are very few ways you can build a touchscreen smartphone, and other than "touchscreen smartphone", nearly all similarities end.

1) Antenna. Samsung hasn't copied Apple's stupid "fully exposed antenna around the device rim" design.
2) Operating system - Android's openness (including the fact that Samsung rarely ever locks their bootloaders - a subset of Tab 10.1 units seems to be the first time they ever have) is the antithesis to iOS's walled garden
3) Form factor - Samsung has been focusing a lot on thin large-display phones which, interestingly enough, Steve at Apple claims no one will buy - Apple's Steve Jobs: 'no one's going to buy' a big phone -- Engadget - How is that copying? Samsung did exactly what Steve Jobs claimed would make them fail in the market, and it has led to their success.

 

[OffWorld]

Apple actually holds a trademark on rectangular handheld electronic devices with rounded corners (essentially), which means most mobile devices on the market actually infringe and either Apple will sue them all or the trademark will be invalidated by the court. Samsung also released phones with a custom UI that was intentionally designed to look like the iPhone UI down to the icon designs, colors, and placement. Also Samsung intentionally made the packaging for their phones look like Apple's minimalist designs. So they're looking at trademarks, trade dress, copyrighted designs, UI patents - you name it.

In infringement cases all the court has to determine is if a "reasonable person" would think the one design looks enough like the other to cause confusion.