On May 12, Young Sohn, chief strategy officer of one of the world’s largest Information technology companies, Samsung Electronics (SSNLF, Financial), presented the ‘Artik’ series of miniature super smart computer chips that can be power connected everyday objects and devices such as smart watches, smart clothes, fitness trackers, mobile phones, light bulbs, home media storage devices, security cameras etc. This may well usher in a wave of revolutionary ‘Internet of Things’ applications and products. This new technology is designed to empower the currently trending ‘Internet of Things’ initiatives in Silicon Valley for development of assembled hardware and software solutions by start-ups and electronic enthusiasts as well as enhance Samsung’s new range of Smart TVs, mobile phones and home appliances. With this ground-breaking System on a chip launch, Samsung is hoping to reinvent itself after a dismal performance in the smartphone segment last year.
Rethinking Vision 2020
Samsung Electronics is the flagship of the South Korean multinational, Samsung Group, which had humble beginnings as a dried-fish exporter. After the Koran war, it flourished into a conglomerate with diversified businesses from life insurance to construction, and of course the most successful electronics which thrived in a market earlier dominated by Japanese super brands Sony (SNE, Financial) and Matsushita (PCRFY, Financial).
In 2009, Samsung announced an ambitious 10-year development plan to expand its annual sales to $400 billion and claim the no.1 spot in the global technology market. The inspired approach and the successful launch of the first Galaxy S smartphone activated the dominance of Samsung smartphones in the market with multiple models and variations stimulated by updated models every few months. But the debilitating heart attack of its CEO in May 2014 coincided with a dismal year for Samsung as its latest Galaxy S range failed after its popular predecessors generated all time high revenues for three year.
The disappointing 42% drop in mobile operating profits in 2014 was followed by a poor first quarter in 2015 with net profit decreasing by 39%. Samsung at its peak had outsold Apple (AAPL, Financial) iPhone in the high end mobile segment, but the competitor is currently thriving with a gross profit margin of 41%. Also, the tough competitions in low segment by inexpensive Indian and Chinese smartphones have forced the Samsung think tank to review Mr. Lee’s build-scale-at-all-cost strategy.
Looking ahead
Samsung is one of the largest manufacturers of memory chips, along with rivals Intel (INTC, Financial) and Texas Instruments (TXN, Financial). Its Exynos chip powers the Galaxy series of smartphones while another version drove the first 2007 iPhones. The technology major diversified into ‘Internet of things’ by acquiring the innovative start up SmartThings based in Silicon Valley to design standardised technology to facilitate interconnectivity between devices of any brand. The Artik series is in line with the original 2020 plan to connect all electronic devices and Samsung hopes to boost its waning fortunes with its success.
While the mobile woes dragged the profit down, the earnings from its semiconductor unit increased by 50% showing potential for building components for other technology brands and hardware companies. Last month, Samsung received a lucrative order to build chips for upcoming Apple products and also announced a state of the art semiconductor manufacturing unit worth $14 million in Pyeongtaek.
Kim Hann-earl, a Seoul University business professor has advised Samsung executives to not just develop better products but to review the overall business model to sustain its standing in the dynamic technology sector. Speculations are ripe that Mr. Lee’s Harvard educated 46-year-old son, Lee Jae-yong, currently a vice chairman, will take over the reins sometime soon.
