Samsung is at most "stepping down" from the altar, not falling into the abyss

Recently, many people have been pessimistic about Samsung, with theories of decline and collapse appearing one after another.

But who still remembers that when the Galaxy S4 was released in early 2013, Samsung Electronics recorded a record net profit of 9 billion US dollars, and the outside world was optimistic; on the other hand, Apple's stock price fell below 400 US dollars, and its market share continued to decline rapidly, and the outside world was pessimistic. I have never understood how some people who have never understood what happened in the past can predict the future.

Let’s go back five years.

Who could have foreseen that MOTO would be sold, Nokia would be acquired, and HTC would experience ups and downs? Xiaomi, which was ridiculed, looked down upon, and looked bad in its early days, has sold 27 million mobile phones in the first half of this year alone, and has already extended its tentacles into the international market. If you can't understand the rapid decline of traditional giants, the rocket-like growth of Xiaomi, which has no foundation, and Apple's monopoly of most of the industry's profits, then how can you know that Samsung will soon follow in the footsteps of traditional manufacturers?

Smartphones have gone from a booming period to a mature period, which is a process of continuous product homogenization: industrial design standardization, appearance material standardization, component standardization, and even "marketing techniques" are also tending to be standardized. Behind the differentiation is the rise of core supply chain manufacturers. The product form of smartphones has evolved from high integration, closed, and high threshold to open and low threshold. To give the most obvious example, in the PC era, "standardized" CPU suppliers Intel/AMD appeared. After the great waves of the past few years, the mainstream market of smartphones now only has Qualcomm and MediaTek. Their highly integrated Socs have achieved the most perfect balance in terms of performance, cost, and solution development difficulty.

After continuous product trial and error, the Android camp has been "neutralized" by the market. After all, the proven designs, materials, and components are the most suitable. If you make a little differentiation, the overall competitiveness will decrease instead of increase. If the market becomes homogenized, it will inevitably fall into a red ocean state. While the profit margin plummets, the competition points will also become marketing and cost control. Traditional hardware giants such as MOTO, Nokia, and HTC will compete in marketing, product cost control, and who can tolerate lower profit margins. Of course, they cannot compete with domestic manufacturers, so their collapse or decline is inevitable.

So, now the question is, how can we avoid homogenized competition and ensure profit margins? Of course, differentiation.

The fundamental of differentiation is to have something "different" of your own, and this "difference" gives you competitiveness that surpasses the homogeneous products in the market, so you dare to pursue differentiation. There are also several types of differentiation, pure hardware differentiation, such as Samsung; software differentiation, such as Xiaomi mobile phone MIUI; or hardware and software differentiation at the same time, such as Apple. They are all leaders in the market.

Samsung was able to compete with Apple in the high-end market for three reasons. First, it had its own closed supply chain, which reduced product costs; second, Apple had not launched the iPhone 6/6 Plus before, and "voluntarily gave up" the large-screen market; third, Samsung Electronics' decades of accumulation and full industry integration brought about hardware differentiation. The third point is the fundamental one.

Why should we close the supply chain, pursue vertical integration in hardware, and arrange everything from parts supply to assembly production by ourselves? The delineation of product models and the allocation of production capacity lead to refined inventory management; arranging parts supply by ourselves leads to reasonable cost transfer; having the ability to control production by ourselves can ensure quality control and ensure that we seize the fleeting market gap and launch large-scale products. The combined effect of refined inventory management, leading parts pricing, and timely and large-scale launch of new products has reduced the cost of high-end smartphones. In contrast, domestic manufacturers cannot control the supply chain by themselves, and their core parts are supplied by others. They have no pricing power and cannot obtain timely delivery, so of course the cost cannot be reduced.

In terms of hardware differentiation, Samsung Electronics has accumulated decades of experience in the entire industry, including screens, flash memory, ARM processors, camera CMOS photosensitive chips, lithium-ion batteries, and even plastic development and processing. Each of these is at the industry's first-class level, and some components, such as screens, are even the best in the world. It is precisely because of this that Samsung dares to make hardware differentiation and not use Qualcomm's processors, JDI's screens, and Sony's camera photosensitive chips, because when vertically integrating its own products, the hardware competitiveness of the Galaxy flagship is only higher, not lower, and the cost is even lower. This is actually how Samsung's premium and high profit margins relative to domestic manufacturers come from.

Software differentiation is Samsung's biggest shortcoming. Xiaomi's MIUI is a good-to-use Android "shell", which still gives its products a certain degree of competitiveness. The impact of Apple's independently operated iOS ecosystem on the iPhone is even more difficult to quantify: when others have launched 5-inch 1080P mobile phones, Apple's 4-inch "outdated" iPhone last year can still continue to sell well. If the same configuration is switched to the Android camp, such as last year's recognized most beautiful Android phone HTC One, it is simply unimaginable. Of course, Apple's software differentiation can go deep into the system ecosystem level, and the most fundamental reason is that iOS is currently the best mobile operating system experience.

When Samsung reached its "historical peak" with the launch of Galaxy S4 last year and received praises from the outside world, I saw the huge risks. Because whether Samsung can continue to prosper basically depends on the differentiation of "complementing" the system and software ecosystem. Samsung itself knows this very well. However, from the earliest Bada, to the creation of Tizen with Intel, and the development of a series of functional software adapted to its own machines starting with Galaxy S3, these attempts have all failed without exception.

Samsung is good at hardware but not software. It does not have a "differentiated" software and system ecosystem that is ahead of other manufacturers. Of course, it cannot enjoy high profits in the high-end market like Apple. Samsung is currently experiencing the process of returning to a "normal market position". Behind it is the fact that Apple's iPhone has finally covered the mainstream large-screen market, and the hardware technology is difficult to break through, which greatly reduces the previous hardware differentiation effect. However, with poor sales and declining market share, some people have begun to predict that Samsung mobile phones will "die" like Nokia and Motorola.

Have these people forgotten that Samsung's current vertical integration of hardware still has the effect of reducing costs, and its profit margin is guaranteed, and it will never be forced to the same level as domestic manufacturers. If it actively reduces profits and launches a price war to expand its market share, domestic manufacturers will probably be "beaten back to their original form" soon.

Samsung mobile phones, at the very least, have transformed into an upstream supply chain manufacturer, and part of its current operating profits also come from this. Whether it is ARM processor IC design, advanced chip manufacturing technology, flash memory, screen, camera photosensitive chip, lithium-ion battery, they can guarantee its future. Samsung is at most "stepping down" from the altar, not falling into the abyss.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.