Home opinion-and-analysis ShawThing Samsung demand outstrips supply
Samsung demand outstrips supply Featured

Samsung has achieved a solid lead in the supply of smartphones (well any phones really) at the expense of Apple (and pretty well all the rest). These two suppliers accounted for almost 100% of the industry’s profit (not sales) in Q1 2013 according to Canaccord Genuity investment bank data.

The massive take up of smartphones has led to supply problems. Samsung has been a victim of its own sales success and its component supplies are now stretched to the max trying to meet demand created by declining Apple (and other) sales.

Samsung has been able to grow quickly because of its in-house supply chain – it owns/makes over 80% of the components it needs including memory, batteries, screens and even packaging.

Conversely Apple own no manufacturing or component supply for the iPhone 5 (or any product) and rely heavily on manufacturers including Foxconn - the world’s largest electronics ‘assembler’ so indirectly it does have some purchasing clout with suppliers.

The smartphone wars have also had impacts across a broad spectrum - the success of the S4 seems to positively influenced sales of all Samsung's handsets from the cheapest to the premium.

Samsung has become voracious in snapping up components and this has created a perhaps unintended problem for Apple which is strongly rumoured to be introducing a lower cost model for emerging markets like China, but it may not be able to get the raw components to do so.

"Any [supply] disruption in even small parts that you wouldn't think are really core, say headphones, can affect product launches," said Lee at NH Investment & Securities. "For example, Taiwan's HTC Corp, which has slipped out of the top-10 smartphone makers, reported a record-low quarterly profit last month after delaying the full launch of its flagship model due to a shortage of camera components".

"Having a single supplier carries a lot of risk” says Song Jong-ho, an analyst at KDB Daewoo Securities.

To the future

For the first time Samsung has spent more on marketing than on research and development to take advantage of an ‘opportunity in the absence of new, competing models from Apple’.

"There's not much left in terms of what you can do to really differentiate your product as everybody's thinking something similar - flexible or wearable," said NH Investment & Securities' Lee Sun-tae.

Samsung plans to introduce flexible displays and wearable computing.

Apple the iWatch

Google Glass draws closer.

LG Electronics will introduce an unbreakable smartphone by the year-end.

Sharp has a water resistant Xperia (at least to 1.5m for up to 30 minutes)

Smartwatches are here a.k.a. Pebble

What’s next?

Opinion

Samsung is now so big that it could literally starve other players out just by muscling in on the parts market, driving up costs and creating component shortages and supply bottlenecks. Don’t believe for a moment that it would not do this. All is fair in love and war.

Evidence of this is clear - Samsung buying a 3% stake in Sharp, a traditional Apple screen supplier and massive forward ordering from Qualcomm, Toshiba, Sony, Corning, STMicroelectronics and Bosch.

LG is reputed to have said to Google that it may not be able to produce the next Nexus smartphone simply due to parts shortages and we suspect the success of its own handsets. If LG (as the world’s third largest smartphone with the strong sales of its premium Optimus G) maker can’t help don’t expect HTC or Huawei or ZTE to be able to pick up the slack either.

And I thought the world was still in a financial crisis.

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Ray Shaw

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Ray Shaw ray@im.com.au  has a passion for IT ever since building his first computer in 1980. He is a qualified journalist, hosted a consumer IT based radio program on ABC radio for 10 years, has developed world leading software for the events industry and is smart enough to no longer own a retail computer store!

 

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