Is Samsung Done for Good?

Is Samsung done for good?

So it looks like Samsung has done a complete recall of their Galaxy 7s, after they told everyone that they had fixed the original problem. But their stock has dropped 8%. However, they are diversified. Do they still have a chance at coming back?

 

As you said, the stock only dropped 8%. I've seen stocks drop more because the CEO sounded like he had a cold on an earnings call. Will the reputational damage eat away at their market share irreversibly? Is the Galaxy 7 problem an indication of more serious quality control and engineering problems at the company? I have no idea, but Samsung appears to be a going concern.

 

I'm sure Samsung is gonna survive an 8% drop... Anyone else curious about how Samsung will fare against Google's new Pixel?

I'm talking about liquid. Rich enough to have your own jet. Rich enough not to waste time. Fifty, a hundred million dollars, buddy. A player. Or nothing. See my Blog & AMA
 

I think this all boils down to what your definition of "done" is. Is the stock going to drop? Most probably. Is the company going to go out of business? Definitely not. This may all be overblown.

I mean if you take Twitter as a similar example, people are so bearish on it and saying that the company is "dying". TechInAsia has this Facebook post peddling the tagline "The end is near for Twitter" (https://www.facebook.com/techinasia/photos/a.242673982437689.55836.1757…) sparking all types of panic and reactions on Facebook. But I'd like to point everyone towards the actual financials:

I think that's far from "dying". Does the falling growth mean that Twitter doesn't deserve its current valuation? Very much so, and I've always thought it was an expensive stock. But does it mean the company is teetering on the brink? Probably far from it.

My previous analyst role was at an equity fund, and I know how it feels to see some headline come out and see the stock react in a big way, and you wonder if it's a momentous shift which will cause the company to live or die. Then I moved to VC and realized that companies don't change over the course of a day, week, month or even a year in most cases. Structural changes that make or break companies often take much longer.

Going back to Samsung, Q3 guidance is still a net profit of $4.6 (on $42B of sales), and their balance sheet is nowhere near being debt-heavy.

If you look at the Smartphone market, Android continues to be the dominant operating system globally, and Apple is nowhere near that. That being said, Android is definitely a much more fragmented segment of the smartphone market.

Statistic: Market share held by smartphone operating systems in China from 2013 to 2016, by month | Statista
Find more statistics at Statista

However, Samsung is still the biggest player in that market and has historically held on to a significant market share.

Statistic: Global market share held by Samsung in the mobile phone market from 2009 to 2015 | Statista
Find more statistics at Statista (Sorry for the old data, can't seem to find a more updated chart)

The safety issue is only with their Galaxy Note S7 line, which is in the grand scheme of things, not a giant part of their revenue. This debacle will really have a more profound impact on their brand and reputation rather than killing profits in a crazy way. I think they may be challenged to grow profits in the same way they used to and this will most probably hit market share due to competitors being able to grab more of the incremental smartphone sales than Samsung sales declining. Given the competitiveness of the smartphone market now, this setback may challenge Samsung's dominance (http://www.idc.com/prodserv/smartphone-os-market-share.jsp) but Android phones are still 88% of the smartphone market and Samsung remains the biggest contributor. This may be an opportunity for some of the cheaper players such as Xiaomi and Huawei to grab some market share now that this safety issue hits Samsung's value proposition (way more expensive, comparable features AND a safety issue?).

"Be the Disruptor, not the Disrupted" - Clayton Christensen
 

I guess it's perspective issue. They do have largest market share and sales rev and whatnot. However, iPhone is a much better phone and always held the best smartphone title, imo (at least up to iPhone 6s). Whenever Apple introduced a new phone, Samsung basically copied the performances of the phone. With their 7 models, they introduced new features (even though nothing spectacular) before Apple. Now iPhone 7 looks like nothing new. And yes, it is only Note line that explodes (explodes!), it just doesn't give confidence that other models are well made.

And they are above Samsung on FORBES Global 2000.

 

Firstly, it was just the Note 7s, not the entire Galaxy 7 line. Also, Samsung is responsible for roughly 20% of the GDP of South Korea and literally makes everything. Smartphones are a small segment of their operations, of which the Note 7 is yet another small segment.

Depending on whether issues arise with their other phones and how they respond to the Note line in the future, their high-end smartphone brand MAY be tarnished / damaged, but the Samsung company is fine.

For me, it's not about a temporary dip in their stock or one particular model burning up.

It's a question of trust - they STILL have not done any sort of press conference where they explained what happened. Some of this probably has to do with Korean culture (btw...I will never ever fly an Korean airline/Korean pilots).

I imagine if this was a VR headset and it caught fire while on your face.

Again, I will have a hard time trusting Samsung products and their safety since they rushed out the "safe/replacement" product in a few weeks. Seems like they don't really care about consumer safety.

That's a deal breaker for me. I will not be buying ANY Samsung product. They should stick to making back-end products like the RAM/processors for iPhones etc.

 

Not quite sure how you're defining "done" in this context, but Samsung Electronics had around $70bn cash on hand (including short-term financial investments) and $8bn worth of long-term financial securities as of the end of June this year. At the same time, they had about $10bn of short-term IBD and $500mn of long-term IBD. This gives them a $70bn net cash position. Given this fact alone, I think they are one of the last companies to go bust in the entire world unless Kim Jongun goes berserk.

But the setback they have experienced on their new galaxy line will definitely come back to haunt them going forward, at least for a year or two. Although I can't tell because I haven't used any of Samsung smartphones in the past, what really separated them between Apple was their manufacturing prowess and precision and reliability. This incident really calls into question of their purported values, and I think this is more damaging than the few billion dollar losses from this.

 

Samsung is a behemoth. Like people mentioned above, smart phones is just one of their product lines; they have other products that do very well. (e.g. home appliances, TV, chip/processors). Not saying they didn't screw up, they surely did, but there will be very high expectations from consumers when they bring out their Galaxy S8 or Note 8 in the coming year, and they need to kill it.

 

Thanks for the insights! I do think it's a bit unfair to criticize Samsung on their designs relative to Apple though it's quite fair to criticize them for their reverse engineering strategy. Arguably, ALL other consumer electronic companies pale design-wise relative to that standard and they are all playing catch-up as a result. The one notable exception right now from a smartphone standpoint is the HTC One which is stunning yet may end up costing HTC a ton of money because that's an example of putting too much into design at the expense of profitability.

 
eskimoroll:

Thanks for the insights! I do think it's a bit unfair to criticize Samsung on their designs relative to Apple though it's quite fair to criticize them for their reverse engineering strategy. Arguably, ALL other consumer electronic companies pale design-wise relative to that standard and they are all playing catch-up as a result. The one notable exception right now from a smartphone standpoint is the HTC One which is stunning yet may end up costing HTC a ton of money because that's an example of putting too much into design at the expense of profitability.

Agreed, although people like the One, and if I had to use an Android phone that would be it, hands down. It's an industrial design masterpiece, on the same level as the iPhone 5 almost. I think its simply that there is a culture of design and detail attention that exists at Apple, and its hard to "synthesize" that, copying or not. Anybody who reads through Steve Jobs' biography will see that above all, design was important to him. Thats why Apple products look the way they do, and are usually so beautiful.

"When you stop striving for perfection, you might as well be dead."
 

you know yourboss'sboss, I'm glad you did. A lot of people forget that Silicon Valley was built and bred in the 1980s and 1990s.

South Korea, like it or not, was an economy based on innovation at a time when the U.S. was not -- just look up the definition of a national innovation system and you will see that S. Korea outspends the U.S. ever year in terms of R&D in percentage terms. But now, apparently according to some politicians, we are told we are... and perhaps we maybe but I have to admit S. Korea did beat us to the punch.

A little humility would go a long way there young man.

 

One may actually argue that ancient empires had economies that supported innovations, when the US was basically a bunch of trees.

Shallow views like the one from yourboss'sboss' are the grown up equivalent of putting your hands over your ears. It's interesting how someone can overlook the first water distribution system in the world while classifying a slightly difference in the shape of a phone as "innovation".

 

G.M.. if you don't know anything about a subject, in this case: patents, engineering, design practices, reverse-engineering, culture, Korea, and technology, I would not recommend blogging about it. You obviously are a talented writer, much better than I could ever be, but stay in your field of expertise.

You sound like one of those talking heads on CNBC blabbering about 64 bit processors vs 32 bit processors when they literally couldn't construct a single intelligent thought on the subject.

 

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