By Kim Yoo-chul
Late last year, top executives at Samsung Electronics put the company on emergency footing to come up with measures to deal with Apple's iPhones on its home turf.
Fast penetration by Apple's "all-in-one" smartphone in the local market has threatened Samsung’s dominant status here, particularly in the area of hardware-focused products such as feature phones.
Responding to the iPhone's rising popularity, Samsung introduced its own smartphone, the Galaxy S, which is seen as the harbinger of a strategic transition toward software.
Samsung's move was considered a step in the right direction as it succeeded in gaining a strong foothold with the Galaxy S and received credit from the market over its strategy shift.
However, questions are arising over the direction as its business structure has failed to keep up with the transformation.
"Samsung has made 'substantial progresses' to catch up with the new wave and is stepping up efforts to speed up the transition. But, we are still undergoing a turbulent period as there are a lot of issues we have to tackle," said an unnamed Samsung executive.
"Samsung has laid some foundation for software transition, but our business structure is still focused on hardware-related products such as chips and flat-screens," he added.
Samsung spent 7.27 trillion won on research and development (R&D), last year, from 6.9 trillion won that it had earmarked in 2008. Unfortunately, most of the spending went to upgrades for hardware facilities.
Although Samsung has seen a rapid external growth over the last decades through its hardware-focused strategies, it needs to implement a next-phase plan to secure a balanced business portfolio and ensure sustainable growth.
For the balanced portfolio, mergers and acquisitions (M&A) can be a good option, according to market experts.
Samsung is getting over 75 percent of its revenue from computer memory chips and flat-screens.
The company is the world's largest manufacturer of flat-screen televisions, while it only trails Nokia in the overall handset industry, though its smartphone presence is still meager.
Samsung needs to be aware of why it is not as recognized globally as it should be. Market analysts say the firm is suffering from a "Samsung Discount" mainly due to its hardware-focused production line.
"If Samsung really wants to add software-related things to its business line-up, it needs to be more aggressive for overseas acquisitions deals," a source said, adding should Samsung move toward a balanced money-making structure combining hardware and software.
Samsung was passive on overseas acquisitions over the last decade after it saw catastrophic results in buying then U.S. PC maker AST in 1994.
It dropped an earlier offer to buy SanDisk in 2008, and gave up buying Infineon’s wireless unit, and the U.S.-based Web operating system company ― Palm.
In 2007 and 2009, Samsung bought the Tel Aviv-based system manufacturer TransChip and Polish white-goods maker Amica, respectively. However, the deals were "exceptional" and not moves to strengthen its software capability.
"Leading technology companies are boosting their business portfolios by applying diversified strategies, leaving Samsung to stand alone with its hardware strategy over the next decade. However, this is not enough to water down the 'Samsung Discount'," said the source.
The $6.8 trillion global consumer electronics industry is truly experiencing "transformational growth."
Digitalization, miniaturization and mobility are the top words to effectively lead this ongoing change. Fiercer competition is causing the commoditization of the industry, burdening tech companies through pressurized margins.
Experts and market analysts say the industry for now is standing at a crossroads where it must innovate to survive or seek next revenue sources.
Google bought a social gaming developer for $20 million, while PC maker Hewlett-Packard has been striking mega acquisition deals to boost its capability for cloud-computing and software. Meanwhile, IBM is planning to invest $20 billion for an M&A by 2015.