Jul 082014

I’m sure my readership is all broken up about Samsung’s latest earnings guidance, which is warning that the company’s operating profit has dropped 24% YoY to a 2 year low. Just in case you thought the anticipated $7.1 billion in operating profit was one of those “YoY anomalies”, that figure is also down 16% from the previous quarter. It appears that pundit-dubbed “innovation” combined with a budget-busting campaign of negative advertising and flagship BOGOs haven’t been enough to keep the bends from continuing to bubble up through the company’s bloodstream. The news was so bad that Samsung actually felt the need to explain its performance in a statement issued with its 2Q guidance. The excuses, which range from the appreciation of Korea’s currency to increased competition in India and China in the “throwaway” shartphone category, belie a deeper concern that Samsung has had its 15 minutes. So what has changed since those glorious salad years of 2012 – 2013? I have a couple of theories.

A Case for Defending Your Patents

This is what the Galaxy S (the S II) looked like in 2011:


This is what it looked like (the S III) in 2012:

Screeny Shot Jul 8, 2014, 3.41.28 PM

Apple filed its “home field” infringement suit against Samsung on April 18, 2011. I think you could make a case that the S III was the first phone whose design deviated meaningfully from the iPhone. Some of this was to accommodate the larger 4.8″ screen, but some of the design choices, including the body’s exaggerated curvature and the choice of materials, was in response to the threat that Apple’s legal action represented. Since it filed and subsequently prevailed against Samsung, the company never went back to slavishly copying the hardware features of the iPhone.

The trial itself also scarred the Samsung brand. Between borderline illegal tactics, which included destroying evidenceviolating court-ordered prohibitions and Samsung’s obnoxious defense attorney posturing, the size of the jury award gives an indication of how put-off the U.S. jury was by the company’s antics. Even though Judge Lucy Koh continues to make a mockery of Apple’s jury verdict, which was rendered almost 700 days ago, the deterrent effect of a relentless Apple combined with the image of Samsung as an unethical monster has irreparably tarnished the company’s brand – at least in this country.

The Spaghetti Stopped Sticking…If It Ever Did Stick

So what does a company that is strongly discouraged from directly copying a competitor do for its next act? They innovate shit out a bunch of half-baked ideas into the market, of course! In addition to continuing to inflate the size of their shartphones and tablets to include every diagonal measurement imaginable, Samsung also jammed sensors, music streaming services, basically anything it could use as a presentation bullet into their hardware. I’d say that effort reached its peak with the release of the S4, whose bizarre presentation was a microcosm of its feature set. “Features” like Eye Tracking, Air Gestures and Air View were demoed like they’d be useful only to be universally panned as anything but. Because quoting myself gives me a boner:

The Galaxy S4 represents an impasse for Samsung. No longer able to rip off Apple’s features – as much – and not being able to do anything with the hardware beyond what the tech press has ubiquitously referred to as “evolutionary”, Sammy is left to pack shit features and a couple of useless sensors into their kit.

After the S4, things deteriorated. There was the Pebble, a music player/S III accessory that forgot that the market for those devices was already incorporated into smartphones. Then there was the single greatest indication that Samsung was deliriously desperate to be viewed as an “innovator”. In what can be traced back to a single blog post, Samsung and the rest of the technorati got a whiff of a rumor – that Apple was making a smartwatch – and decided to base a product on it (innovation!). The resulting Galaxy Gear, now in its 3rd iteration, is just as useless as it was when version one was released.

The Low End Is Getting Pinched

One of the excuses Samsung laid out as contributing to its shrinking position actually is true: Samsung no longer has command of the low-end shartphone market. Coming most notably from Chinese manufacturer Xiaomi, Samsung is not only face-down in the profit-fetching segment  dominated by Apple, it’s now facing competition in the much less profitable segments it used to dominate. One thing that bad horror movies has taught me is that it sucks being the center segment of the human centipede. Especially on taco night.

In the midst of all this red ink is Apple, a company that just consistently puts out the best consumer electronics experiences on the planet. If the latest WWDC is any indication, they’ve just started hitting the gas on 2014. I’m looking forward to seeing several more pairs of treadmarks across the Samsung logo in the coming months.

 Posted by at 4:38 pm

  2 Responses to “Reaping What They Sowed: Samsung Continues Its Delicious Financial Free Fall”

  1. Excellent read, as always.
    The next year or two seem to be inflection points for Apple & Samsung. Either Apple will continue to grow, pushing through the barrier of people who “just can’t see themselves buying Apple products” or not. Of course, this is just in the highly-penetrated markets like US and Europe. There’s plenty of growth in the rest of the world.
    Samsung will either remain a strong 1st-by-units/2nd-by-profits or get reduced by the pack to just be a member of the pack.

  2. Great article! Maybe one of these days I’ll be proven wrong, but I’ve always thought that Apple planted the iWatch idea into the media, for the very intention of hoping Samsuck would spin out a turd (with really no intention of creating their own iPhone-on-a-wrist).

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