How Samsung Became The Hottest Smartphone Company On The Planet (SSNLF, AAPL)
Samsung has arrived.
Its massive success, underway for a few quarters now, has finally penetrated the mainstream consciousness.
This morning, reports of a smashing Q4 arrived. Samsung posted $ 8.3 billion of profit during the last three months – an 89% increase over the same period a year ago.
So, how did Samsung do it?
The formula is actually pretty simple.
- It tried smartphones of every shape and size and sold them on every carrier. (It currently sells almost 40 varieties.)
- Then it threw a huge marketing budget behind the versions that consumers liked.
How huge is Samsung's marketing budget? Historically huge.
Look at this:
Is this a sustainable model for Samsung?
Last quarter's $ 8.3 billion in profits suggest the answer is yes.
But Samsung does face some huge challenges.
The first is that it does not own the operating system that powers its hot-selling phones, Android.
Right now, Google is happy to give the very latest version of Android away for free.
But Google also owns a handset maker, Motorola.
Someday Google will look at Samsung's huge smartphone profits and wonder if it should give Motorola an advantage in the market to see if it could capture some of that money.
It's a scary thought for Samsung for sure.
The other big challenge for Samsung is the one that's facing all smartphone-makers, Apple included: the market is maturing.
As far back as May 2010, Horace Dediu of Asymco began predicting that the smartphone market would reach 50% penetration by September 2012. It finally happened in August 2012.
When that happens, growth will sharply curtail.
Look how flat the yellow curve gets as the "laggards" start to adopt new technologies:
What this means for Samsung is that by sometime in 2014, the biggest multiplier of its rocketship profit growth in the smartphone business – mass adoption – will go away.
When that happens, the questions for Samsung's will be:
- Can it continue to support the massive marketing budget that's gotten it so much market share?
- Will its products be distinctive and advanced enough to generate enough demand on their own?
- Or will Samsung suffer the fate of HTC, which was once the world's most successful Android phonemaker before collapsing this year?