Why does Samsung fight with Apple?
By Kim Yoo-chul
With Samsung Electronics and Apple failing to find a compromise over a patent battle, attention is being paid to what action they will take next in the complex legal dispute.
Many expect that neither will take a hard-line stance because many of the lawsuits are so interweaved that no one will emerge as an absolute winner if they continue.
Judge Lucy Koh, who’s in charge of the case in the U.S., ordered Samsung Electronics CEO Choi Gee-sung to meet with Apple CEO Tim Cook. They talked for about 16 hours on May 21 and 22, but failed to find middle ground leaving market participants questioning whether the two will ever sign a peace treaty.
“In businesses, there are no eternal corporate enemies or friends. There are always disputes and compromise. Samsung and Apple are looking for the right timing and right country for a sudden announcement to end the fight because if either lose, then the defeated one would face similar lawsuits,” an industry source said.
Samsung is likely to look for “good excuses” to end the dispute, but according to reliable insiders, the company does want the dispute to continue for a while as it feels it has gained more since the dispute began.
Samsung still needs target
Samsung is balking at seeking an imminent patent agreement as it still needs a “target” to further foster its phone-making business after becoming the biggest manufacturer after passing Nokia.
From its perspective, however, the lead isn’t safe, meaning the dispute could be used to urge Samsung designers, technicians and software developers to roll out more powerful and design-enhanced smartphones ahead of schedule.
The company shipped more than 44 million smartphones in the first quarter, said officials asking not to be named. Apple said it sold 35 million iPhones during the first quarter.
But when it comes to revenue and profit margin, Samsung still has a long way to go to completely beat its smartphone rival. The profit margin at Apple during the latest quarter was 39.3 percent, while that of Samsung’s telecom division was 20 percent, according to officials from both firms.
Also, Apple is leading Samsung in its home-turf — the United States — which is also a crucial market for the latter. AT&T, the biggest mobile carrier in the United States, said 5.5 million smartphones were sold during the quarter with Apple selling 4.3 million.
“The Galaxy S is inferior to the iPhone in terms of average selling price (ASP), which is the key barometer to gauge brand awareness and perception of consumers. That’s another reason why Samsung wants to keep continuing the patent fight with Apple,” said another source requesting anonymity citing the sensitivity of the issue.
Kim Soon-taek, the top secretary of Samsung Chairman Lee Kun-hee, recently said that Lee called on the top management to beat “the rival” in smartphones — apparently referring to Apple.
Some say the fight is “costly” because neither company has been able to gain the edge over the other. But Samsung, which targets to reap a record 28 trillion won in operating profit this year, doesn’t care about the “billions of dollars” being spent.
Recently, it has become more serious about its image as it wants to become a market creator not just a product and parts supplier.
“This is worth it. More consumers know about Samsung. The fight with Apple has so far been effective in boosting our brand awareness,” the source said.
Samsung became the top smartphone maker late last year, as it was expanding its battle against Apple.
Its brand value is now 17th with an estimated value of $23.4 billion, according to the “2011 Best Global Brands” by Interbrand.
A year earlier, Samsung’s value was estimated at $19.49 billion, Interbrand said.
Interbrand also showed that seven of the world’s top 10 brands came from the tech sector, with Apple boosting the most meteoric rise — at 58 percent — in brand value compared to the previous year.
“It’s quite an inspiring result for Samsung to add two-notches in brand value in 2011 from the previous year’s 19th,” said the source.
Confidence in parts
The last reason is Samsung is a parts supplier to Apple guaranteeing output commitment, on-time delivery and better pricing — it is the world’s top supplier of chips and LCDs.
It does make sense that Apple is stepping up efforts to break its dependence on Samsung components. But analysts say it’s “somewhat risky” to suddenly change sourcing channels to Taiwanese makers due to quality-related problems.
Samsung is the major supplier of LCDs and chips for Apple’s iPhones and iPads, though the latter is sourcing small amounts of components from Taiwanese or even Japanese companies.
Speaking at the All Things Digital conference, recently, Apple CEO Tim Cook said he wished he could stamp products “Made in the United States.”
“I want there to be a product made in the United States.”
Apple’s final assembly is done through Asian contract makers, particularly Taiwan’s Foxconn Technology Group and its listed entity Hon Hai Precision.