Does Samsung go on the right track?

Samsung last year changed the approach to the market. They used to only focus on “premiere market”, but now on “low-end market”, too. At the result, they sold more handsets at the emerging markets, which was the base of Nokia, Finnish giant. Are they on the right track?

Yes, they are.
Changing the target to the emerging markets such as India and China seems fine as with high growth rate and huge potential. Especially at the end of 2007, subprime crisis hit developed countries. Customers with money are expected to tighten the belt in the year of 2008. Samsung seems to move to the risk-hedged world in advance.

Financial Highlights of Mobile Sectors 2007 Full year

Nokia Samsung Sony – Ericsson LG Elec.
Euro(M) KRW(M) Euro(M) KRW(M) Euro(M) KRW(M) Euro(M) KRW(M)
Revenue 25083 34748232 13260 18370000 12916 17892922 7562 10475900
Units(M) 437 437 161 161 103 103 81 81
Price/unit 57.39 76497.21 82.36 114099.40 124.91 173045.70 93.94 130135.40
Cost 19649 27220349 11802 16349300 11366 15745772 6920 9587000
Cost/unit 44.95 62274.88 73.30 101548.40 109.92 152280.20 85.97 119093.2
Operating Profit 5434 7527883 1458.64 2020700 1549.92 2147151 641.65 888900
Operating Margin 21.66% 21.66% 11% 11% 12% 12% 8.49% 8.49%

* Copyright by Seo S. Lee. This table is based on each corporate 4Q 2007 IR presenation before
auditing, thus some numbers can be changed when the final reports are

No, they aren’t.
Nokia welcomes Samsung at the low-end market with unbelivable operating margin 21.66%. Nokia has beautiful cost structure with economics of scale. Design of Nokia handsets looks same, at least the concept does. They do not put “Vodafone” or “T-Mobile” on their phones. They are running  their own OS, Symbian, not vendors’ own. In other words, supplier’s power created cost-saving. On the other hand, Samsung is running out-sourced OS and chip-set. Samsung produced various kinds of handsets, such as GSM and CDMA. Thus, they should more focus on how to reduce the cost.

The problem is rising of competitors, like Sony-Ericsson and LG Electronics. While Samsung looking up, Sony-Ericsson with fancy Japanese design seemed to take the premiere market where used to be Samsung’s base. Last year Samsung mobile average price(KRW 114,099) was cheaper than Sony-Ericsson’s(KRW 173,046) by 51.7%. Samsung mobile was even cheaper than LG’s(KRW 130,135). Sony Ericsson did operate the business better than Samsung did by looking operating profits with red colored numbers.

I do not know.
Last year Motorola was knocked out of the race and there is rumor that Chinese companies like Huawei and TCL will acquire its business. Then, new comers will transform the market econmics and also influence the cost structure of Nokia. Sony-Ericsson and LG Electronics can not guarantee the growth of premiere market as the tail of sub-prime crisis still exists. One thing that I can confirm is that the mobile market of 2008 will be much interesting than that of 2007.