Home Features
2009/12/06 11:23 KST
(News Focus) Samsung caught in a dilemma over iPhone

By Kim Young-gyo
SEOUL, Dec. 6 (Yonhap) -- The successful launch of the cult iPhone by U.S. firm Apple Inc. and its growing local popularity are presenting Samsung Electronics Co. with a dilemma as it seeks to defend its mobile phone market on home ground while simultaneously capitalizing on its role in the iPhone's production, analysts said Sunday.

   Apple began local sales of its flagship product on Nov. 28 and more than 65,000 units of iPhone were reported to have been sold over the period of less than a week.

   Yet the explosive popularity of the iPhone -- which directly competes with many of the South Korean electronics giant's products -- is not all doom and gloom for Samsung. Market analysts agree that a global sales boom of the iPhone is a significant factor in boosting the South Korean electronics giant's revenues.

   Upon the U.S. launch of iPhone in 2007, market researcher iSuppli estimated that Samsung components made up 29 percent of the prime cost for a unit of iPhone.

   Samsung was the biggest beneficiary of the iPhone sales, according to iSuppli, and other analysts agree that Samsung will remain a key beneficiary of growth in the market for iPhones.

   "Demand for NAND flash memory chips is rising largely on Apple's move to increase the storage capacity of the iPhone," said Seo Joo-il, an analyst at KB Investment and Securities.

   An increase in storage offers users more space to enjoy music or video clips and use different software applications on the phone.

   Seo said contract prices -- the average cost of chips traded in large volume -- for NAND flash memory chips have increased more than 8 percent.

   Apple has been the largest client for Samsung's NAND flash memory chips. A NAND flash memory chip is a computer memory that can be electrically erased and reprogrammed, primarily used in portable electric devices.

   In the July-September period this year, the South Korean electronics giant claimed the largest market share in the global market for NAND flash memory chips with 38.5 percent.

   Seo expected the Samsung-Apple partership will likely continue, saying "Apple has recently doubled the capacity of its phones, from 8 and 16 gigabytes to 16 and 32 gigabytes, respectively."

   Yet while the success of iPhone produces a "cash cow" for Samsung, it can strangle the world's largest chipmaker at the same time.

   The irony lies in the fact Samsung's businesses range across both electronic components and finished products.

   Samsung Electronics is currently divided into two units, the Digital Solutions (DS) business unit and the Digital Media & Communications (DMC) business unit. They are led by Vice Chairman Lee Yoon-woo and President Choi Gee-sung respectively.

   The DS business unit, or the business-to-business unit, manufactures products such as semiconductors and liquid crystal displays. The DMC business units, on the other hand, produces consumer products including TVs, computers, mobile phones and portable music players.

   Apple is therefore not only a large-cap client for the electronics maker, but also an intimidating rival for Samsung, which boasts to be the world's second largest mobile phone manufacturer after Finland's Nokia Corp.

   According to researcher Strategy Analytics, Samsung grabbed a 20.7 percent share of the global mobile phone market in the third quarter this year, selling 60.2 million units.

   In the same period, Apple sold only 7.4 million units of the iPhone.

   However, Apple surpassed the major players in the wireless phone market, in terms of operating profits, the Strategy Analytics said.

   Apple recorded an operating profit of US$1.6 billion in the iPhone business during the July-September period, with sales reaching $4.5 billion.

   During the three-month period, Samsung's operating profit came to 1.03 trillion won ($896 million) in the communications sector, which includes mobile phones, with sales of 10.7 trillion won.

   The market leader Nokia reported an operating profit of $10.3 billion and sales of $1.1 billion after selling some 100 million units.

   U.S.-based research agency Interactive Data Corp. (IDC) said Nokia still led the high-end market, selling 16.4 million units of smartphones in the third quarter. The Finnish company's sales accounted for 37.9 percent of all the 43.3 million smartphones sold in the period.

   Research In Motion Ltd., maker of the popular BlackBerry, ranked second, with 19 percent of the market in the quarter, having shipped 8.2 million units.

   The iPhone maker Apple shipped 7.4 million devices, giving it third place in smartphone shipments, or 17 percent of the market.

   Samsung was fifth, with 3.5 percent of the market or 1.5 million shipped, facing tough competition in the high-end market.

   Meanwhile, Apple has been experiencing tremendous growth due to the success of the iPhone, as customer satisfaction remains the highest in the industry.

   "As users expect greater functionality from their devices beyond telephony, we believe the (smartphone) market will continue to grow faster than the overall mobile phone market," IDC analyst Ramon Llamas said.

   In a desperate defense of its home market against iPhone, Samsung recently reduced the price of its latest 2GB "Omnia II" from 920,000 won to 880,000 won.

   It was vital for the company to keep a strong grip on the South Korean market, as the market often functioned as a testbed of new products for many technology companies, including Samsung itself.

   "The iPhone will be a boon and a burden for Samsung whose businesses encompasses a wide range of activities," said a South Korean market insider, who declined to give his name. "Samsung's DMC unit will have to fight a tough battle to prevent its market share from eroding."