Samsung's shift to phones 'fruitful'

By Kim Yoo-chul

Samsung Electronics has so far been regarded as a trustworthy supplier of components such as memory chips and flat-screens by many.

But its quest for dominance in the mobile phone market is making it possible to expand its share in global sales of premium and value-added devices and become less dependent on volatile businesses, sources said Sunday.

Samsung has transformed itself from a mere semiconductor maker to a handset manufacturer over the past decade.

Bernstein Research, an influential research firm in Wall Street, said Sunday that the company’s strategic motivation has fundamentally changed, after analyzing its operating profits by business sector.

In a report, the firm said Samsung’s handset division made up 66 percent of its entire operating profit reported last year. The contribution of the semiconductor division accounted for 15 percent.

In 2004, the portion for the handset division was only 23 percent. The chip-making division had been the key earnings propeller taking up 59 percent of the total that year.

The report came days after Samsung announced its most-advanced smartphone _ the Galaxy S4 _ on its bitter rival Apple’s home turf.

Senior officials said the company is evolving from a parts supplier to a more profitable firm with a strategic focus on marketing.

“It’s true that Samsung is less reliant on the cyclical and volatile conventional memory chip business. We are investing more in producing profitable logic chips such as processors,” said an executive from the firm’s research center in Suwon, Gyeonggi Province.

“That made it possible for us to become a marketing-driven firm like Coca Cola. It’s the secret behind the bullish sales of our Galaxy products.”

Bernstein expects Samsung to sell a total of 500 million mobile devices this year with 454 million from handsets including 295 million smartphones and 46 million tablets.

Last year, the company sold 415 million mobile devices including 213 million smartphones.

Referring to an increased average selling price (ASP) for Samsung phone _ $209.7 this year from last year’s $191.8 _ Bernstein said it is seeing Samsung as the best positioned to gain a share in premium and low-end smartphones.

ASP is a key barometer measuring a device’s brand awareness and a company’s profitability.

The research firm said Samsung will remain strong in sales of low-end smartphones thanks to its superb hardware, cost competitiveness, broad product portfolio and distribution in all regions of the world.

Despite the massive buzz surrounding its premium Galaxy smartphones, it is releasing more budget handsets with little fanfare.

Except for the Galaxy S4 _ the premium device _ its low-end phones, typically with price tags of less than $100, are meant for growing markets such as Indonesia and India.

The transformational efforts are also backed up by Samsung’s increased spending on marketing. It spent some $11 billion on marketing and the company is seen to be spending more on promotional campaigns and advertising.

“Samsung is cash-abundant, meaning that the firm doesn’t worry too much about the cost of marketing,” a Samsung official said.

Bernstein expects cash- and cash-equivalent assets by Samsung to reach 53.7 trillion won from last year’s 37.45 trillion won.

The overall business outlook appears good for Samsung and increased brand awareness thanks to impressive sales of its flagship products are helping it expand its global presence.

There are still some challenges.

Samsung has already identified a fluctuation of the local currency, the uncertain economic outlook and the recovery of its Japanese and Chinese rivals as its main challenging factors this year.

Bernstein pointed out Samsung should effectively tackle such risk factors to continue the stable lead in its businesses.

“The biggest risks to the downside on our price target for Samsung Electronics are; litigation and component risks from Apple; heightened competition and reduced margins in the handset business and loss of technology leadership in memories to competitors,” it stressed.

A contracting of margins in the NAND flash memory chip industry and a slow recovery in conventional DRAM memory chip sales were also referred to as risk factors.