For years, Apple dominated mobile industry profits, charging a premium for tightly integrated hardware-to-software-to-data centre mobile solutions. It turns out, however, that this magical formula for industry profits can be replicated, as Samsung is showing. It's also increasingly clear that it isn't cheap. Apple and Samsung …
Didn't this used to be called Vertical Integration?
Yes, I believe it is. It can also be a rather precarious one....Jenga!
Re: Didn't this used to be called Vertical Integration?
Yeah, and Samsung has it, while Apple just lets other people manufacture and assemble...
Making their walled software garden was a lot cheaper to build than advanced factories for Apple... now we'll see if that comes back to bite them, before their own hardware efforts come to fruit.
I think the chart is mostly good, but doesn't seem to manage to tally Microsoft's expenses fully.
The interpretation in the article gets a few things completely backwards. Like the thing about Google "moving in the same direction" They are not. They did not buy Moto for that purpose. At most, they're trying to have a trimmed down Moto survive by making the occasional Nexus device, without stepping on the feet of their other OEMs. Google engineers fundamental things, infrastructure... they will remain at the center without needing either a factory value chain or a walled garden.
Google has an advantage with consumers just by virtue of being less asinine than Apple and Microsoft.
People generally don't like corporate control freaks telling them how to do things and what they aren't allowed to do.
The old adage rings true again...
...being that in order to make a few hundred thousand dollars, you need to start with a few million.
Owning chipsets not key...
Although SS do have their own chipsets, they also use a lot from other people. They are not precious - they will buy whoever gives them the best deal, internal or not.
Re: Owning chipsets not key...
They are not precious...
They don't use a Ring bus architecture then?
(Sorry about that.. My punning's getting out of hand again. It's a bad hobbit, and I'm trying to break it, but I keep going there...and back again.)
Samsung could end up making components for other people (again) when Asus or whoever comes out with the next best Android handset - there is no loyalty to Samsung in the same way that Apple enjoy and Samsung do not make a share of all the media / apps etc. purchased. So they make $$$'s today but they are essentially a Google customer after that.
there is no loyalty to Samsung in the same way that Apple enjoy
Certainly the fanbois commitment to Apple is religious, and away from churches that's fairly unique, but I think Samsung do have some loyalty - my SGS2 is so good that my next phone is more than likely to be a Sammy, and my TV is sufficiently good that they will get serious consideration for other electronics purchases. They came close to selling me a DSLR (but were simply undercut by Tesco selling end of line Panasonic G2's at firesale prices).
Not so sure.
In principle I agree with what you say here but... I have seen sufficient clients lately who have bought 'other' SS kit than a TV, who have not been quite so complimentary about the electronics products.
In fact we bought a daughter a SS home cinema system the Christmas before last, to go with their SS TV.
The TV is fine - the cinema system is not. It's been troublesome since the warranty ran out.
They are moving house in the new year and are planning to replace it. The new kit (including TV) will most likely be Panasonic.
(Also, for a while, Samsun DSLRs were rebadged Pentaxes with Schneider lenses)
"my SGS2 is so good that my next phone is more than likely to be a Sammy"
Even if Asus / Motorola / HTC / someone else had a better one - doubt it. Apple have iOS and that is a big deal - Samsung have Android and everyone has one (avoiding the obvious arsehole pun).
Re: Not so sure.
I bought a Samsung 'smart' TV and it's pretty poor really - does not play quite a lot of media files and the interface is poor - wish I had spent another £50 on a Panasonic / other - Sony are not as good as they were but my older Sony in the lounge is better than this new Samsung. I have a few other Samsung devices and I'd say I am ambivalent - they are average and I would be no more or less likely to buy one next time. TV probably not, beer fridge been ok...
Re: Not so sure.
My father's Samsung 3D smart TV isn't smart at all, it has apps, the UI is slow and clunky and it's on its third panel now.
I'm not really that interested in what Apple's rumoured TV would do for the industry, the whole fragmentation of TV wouldn't be good. A common transmission format is useful. But the interface and control mechanism might finally get an improvement.
But I won't hold my breath.
it points to a central fact: the most profitable, successful mobile companies are also those with the highest capital expenses the most on capital infrastructure
But the causation is that if you're stinking rich you choose to invest a lot, not that investing creates success. Apple, for example, were spending the least on this in 2007. Certainly in terms of reported R&D expense Nokia were spending more in 2007 than Apple by a factor of two, and fat lot of good that's done them.
Much more interesting would be to redo this chart to include Motorola, Nokia, RIM and ARM, and then to similarly chart the operating profits of all the companies. The article hints at this, but then doesn't do the legwork.
At a guess, the underlying reality is that it probably costs as much to develop unsuccessful products as it does successful ones. And that means that Apple and Samsung's considerable investments today are no guarantee of future success. Apple got where they are today not by determined spending, but by the zealotry and demanding perfectionism of Steve Jobs. Let's see if Cook can spend his way to success?
Since 2000 Moto was chopping away at headcounts roughly at a rate of 10% every 6 months - possibly faster at the start, and further confused by spinoffs of the automotive bit, freescale, then the separation into Solutions/Mobility and the sale of Solutions Networks to NSN. Throughout this period there was continual erosion of revenue across all divisions, with a spike when it released the original RAZR. Networks sales revenue declined due to price erosion from Chinese competition and declining sales (despite remaining reasonably strong in China, Mid-East and USA) - but Huawei backed them into a corner that they couldn't recover from.
Indeed, but as a corporation they still spent over $4bn on R&D in 2007, and $3.4 bn in 2008. That's rather more money than the chart shows for Microsoft's R&D, and well ahead of Apple, and as with Nokia, it hasn't produced goods that people want to buy at any price that works for Motorola.
98% of the profits shared between Apple and Samsung - jeez - who would want to be 'the others' scratching a living (or making losses) out of the 2% scraps left over.
"Samsung is catching up with Apple in terms of profits by copying its playbook, as VisionMobile analyst Stijn Schuermans notes:
The only handset maker apart from Apple who has built such a unique value chain today is Samsung. The electronics giant not only assembles handsets, but also makes a lot of the most expensive components, notably screens and chipsets."
How is this copying Apple's playbook? Apple don't make any of the parts found in their stuff. Apples extra value comes from controlling the content that comes after they sell the phone.
If anyone is copying Apple's playbook it would be Microsoft. It seems copying Apple's playbook may not be a path to instant money....
@Tom 35 RE "How is this copying Apple's playbook?........
.............Apple don't make any of the parts found in their stuff. Apples extra value comes from controlling the content that comes after they sell the phone............"
I agree entirely. There is a very significant difference between Cupertino's model and what Sammy are doing. This "they are all copying Apple" meme is lazy thinking. Indeed I would go further in saying that Apple's rivals in the market-place are these days trying find a way of challenging Cupertino that does not involve simply copying them because it has dawned on them that that will not work. Look at the way Samsung has pursued the "if there is a niche (hardware-wise) we will fill it" - that is definitely not Apple's style yet that is how the original "Galaxy Note" came into being. There were plenty laughing then when Sammy launched that "monster", they are not laughing now, hmm?
Re: @Tom 35 RE "How is this copying Apple's playbook?........
"that is definitely not Apple's style yet that is how the original "Galaxy Note" came into being. There were plenty laughing then when Sammy launched that "monster", they are not laughing now, hmm?"
Yes they are. The S3 is a better phone and the ipad mini or nexus 7 a better tablet. This thing is too large to be practical as one and too small for the other. Jack of all trades and master of none.
'We only eat RAW CASH'
That would only be apple since they are only ones with insanely high markup's on everything they sell
Samsung and Apple are totally different.
In the long term Apple doesn't have much.
Samsung is well diversified and the only company other than Intel that is close to the cutting edge of fab technology.
(Look at Sun / Nokia in the not too distant past.)
Chipsets are $20 that is not that expensive.
If you want to compete with Intel / Samsung you have to be willing to invest the capital.
(Not that it is necessary to make plenty of money.)
Samsung is not copying Apple.
Except that like Apple they have a very nice physical and UI design.
Re: Samsung is not copying Apple.
A large part of all the MBA courses, self help business books, marketing surveys, reverse engineering etc etc seems to be directed at copying 'winning business practices'.
Everyone does it and, at any one time, there is very little that is truly new on the planet.
One could also make the argument that at least some of Google's capital expenditures, those associated with Android or future Android products/services, should be reflected as an extension of Samsung's.
Article is misleading
Likely the majority of that capex spending by Apple and Samsung likely has nothing to do with their own mobile products. As the article points out, Samsung's capex is mostly going to chip and display fabs. Those cost a lot, but Samsung's own products couldn't account for it. The capacity required for flash for SSDs and all sorts of non-mobile flash using products and LCD panels for TVs would both consume much more capacity than all of Samsung's phones and tablets.
Apple's recent massive increases are quite interesting, but they may have nothing at all to do with mobile. The only way you could spend anything like that much on mobile is if you were building your own chip fab, which seems unlikely (though a JV with IBM, TSMC or GF in New York using Apple owned production capacity is a possiblity)
You certainly can't spend $3.5 billion in a SINGLE QUARTER on things like datacenters, tooling for cases or any of the other stuff Apple has previously been spending on. It could be related to the TV or might be something that isn't even rumored yet (with Apple able to keep it quiet because they're doing the development work internally instead of working with leaky outsourcers like Foxconn like they do for new iPhones and iPads)
does this hypothesis partly explain HP decline?
once made their own chips, OK, designed. Made own kit with good quality parts. IMHO, HP continued policy of cut research, cut staff, focussed on next 1/4 and steadily blown cash reserves on next shiney thing by hiring and keeping senior managers with no grasp of big picture. Captital expenditure is big sin, even if it is to keep customers. No serious complete line of stuff to sell any more, from hardware to apps. OS, sort of, but want to flog a declining server OS, CPU even more marginalised, other HW from whatever is cheap.
Google, Apple and Samsung are mostly consumer players. Apple are only consumer, Samsung covers everything, like the old IBM, Google are software only with consumer focus with some business goals so the firms have some differentiation.
After my experiences with Samsung TVs lately I agree they are dropping ball. Had to go to Sony which is excellent. About the only thing they all have in common except Apple is the later UI are crap. And Apple I wont use, too expensive.
Just on TVs...
I apologise for the digression but at least a couple of people have mentioned TVs with crap UIs.
From what I've seen of "smart TVs", regardless of manufacturer, the UIs are ALL crap! They all want to shovel "apps" and internet garbage at you via a dog-slow, amateurish UI. I don't have a problem with this, in principle, but anyone who wants to browse the internet or play with apps has a computer or a phone. Nobody thinks, "I want to browse the internet and play angry birds... so I'll buy a telly for that." The manufacturers don't seem to grasp that when people buy a big screen telly, they want a "dumb" screen.
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