Billions In The Pipeline

Yesterday two bits of interesting news popped up around Samsung. Foremost, Boy Genius Report said that BlackBerry maker Research In Motion was pushing hard to be acquired by the Korean manufacturer. While we have come to discount BGR and its never-ending line of “sources close to the situation,” it is a testament to Samsung that it would even be considered in such a large and ambitious acquisition. Today, Reuters reports that Samsung has no interest in purchasing the woeful Canadian smartphone manufacturer.

While Samsung purchasing RIM is an oddball blip in the frenetic technology news stream, the real news from Samsung yesterday has a much more tangible impact. According to the Wall Street Journal, Samsung has money to burn. The company plans on investing $41.6 billion in 2012 to help drive growth to its various verticals, including smart televisions and smartphones. That is a rise from $36 billion the company spent last year.

“Samsung has decided to make the biggest-ever investment of 47.8 trillion won ($41.6 billion) this year in order to solidify its dominance in key businesses in the global market and to dominate new growth areas in advance,” The Wall Street Journal reported.

Purchasing RIM would probably not constitute a “new growth area” for Samsung. It is the leading smartphone manufacturer in the world and second largest cellphone maker behind Nokia. BlackBerry is a dying platform and device line that would be a great weight around Samsung’s neck much like Motorola will weigh down Google if the search giant does not spin out the device manufacturer if the acquisition is approved.

No other company outside of Apple in the device ecosystem has the type of clout and cash to back it up as Samsung. Look at what Apple does with its billions to control its supply line for components in iOS devices. One of the reasons that the iPhone and iPad are so profitable is that Apple makes large deals for components looking years, not months, down the line. It makes Apple very hard to compete with when it has a steady supply of displays or processors locked up at reasonable prices. Samsung is the manufacturer of the A5 chip that runs the iPhone 4S and even though the two companies are battling in patent courts around the world, The Wall Street Journal says that business relationship is still in tact.

The report says that Samsung is likely to spend many of those billions of dollars locking up components. It is a page straight out of Apple’s playbook. For a company that is often accused of copying Apple, this may be one the smartest acts of mimicry Samsung could make.

Putting Pressure On The Ecosystem

Samsung does not just thrive because of its prominent place within the OEM environment, but also in how it effects the business decisions of other companies trying to compete with it. As we noted last week, Samsung has set the standard for how the Android/Windows Phone ecosystems deals with the mobile carriers in the United States. By accepting the desire of the carriers to have differentiated Android devices on shelves, Samsung forces the hands of other manufacturers such as HTC, Motorola and LG to come out with different and unique smartphones and tablets. To a certain extent, this is not a bad thing. One of the reasons that Android does so well is that it competes against itself. There is depth and differentiation in the Android ecosystem and that is not a bad thing. Fragmentation is a different issue.

What Samsung, like Apple, does is cast itself as a leader. The game is now to follow the leader. When you have to chase a strong frontrunner to a certain extent you have to play by the rules that the leader sets. Either that or differ from the leader so wildly so as to be seen as “unique.” Examples of that would be how T-Mobile and Sprint try to differentiate themselves from AT&T and Verizon (which are much more symbiotic than you would guess at first glance) by having different data plans and devices.

Samsung dominance is not all about smartphones and processors though. The company is the leader in television manufacturing as well. Our founder, Richard MacManus, was impressed with how the company “doubled down” on smart TVs during the Consumer Electronics Show last week in Las Vegas. Samsung dominance in TVs and its ability to connect them to the Internet via Android or other software makes it very hard for new entrants into the ecosystem, such as Apple. Samsung is likely trying to lock down as many device components to smart TVs for years to come in the same way that Apple does with its iOS devices. That is the most tangible way a company can protect its most profitable vertical.

The fact of the matter is that Samsung is strong, getting stronger and will dictate to the rest of the market, not the other way around. Depends on your perspective, but that could be good or bad for the rest of the ecosystem.

Samsung sinking $1bn into its Apple chip facility is only the tip of the iceberg for the Korean company’s 2012 investment plans, with a whopping $41.4bn expected to go into incubating new tech and streamlining existing production. Samsung Group will most likely pitch the biggest chunk of its fund into system chips for phones, tablets and digital cameras, Reuters reports, along with OLED displays such as the panel used in the 55-inch Super OLED Smart TV the company demonstrated at CES last week, and which is expected to go on sale by the end of the year.

The range of investments will span everything from building factories to R&D, as well as mergers & acquisitions and hiring new staff. Samsung expects to take on around 26,000 new team members in 2012, potentially bringing its global total to as many as 376,000.

80-percent of the investment will go through Samsung Electronics, particularly Samsung Semiconductor and Samsung Mobile Display. Analysts predict the company will boost processor spending by 1 trillion won over 2011, and OLED spending by 2 trillion won, with LEDs, LCDs and battery technology also sharing in a windfall.

“No other IT company can beat [Samsung] in terms of investment” NH Investment & Securities analyst Lee Sun-tae said of the company’s R&D plans. Samsung has said it will unveil a Google TV set later in 2012, while the company has revealed plans to merge its bada smartphone OS with open-source Tizen, with the first handsets also expected to go on sale this year.

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Date: So 04 Okt 2009 15:11:46 CEST

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