Strategic Analysis of Samsung's Smartphone Product Portfolio: Countering the Challenge from Chinese Competitors A
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Strategic analysis of Samsung's smartphone product portfolio: Countering the challenge from Chinese competitors A By MASSACHUSETT" INSTITuTE OF FECHNOL0LGY Soo Jin Go JUN 2 4 2015 Bachelor of Political Science, Korea University, 2006 LIBRARIES MBA, Sungkyunkwan University, 2015 SUBMITTED TO THE MIT SLOAN SCHOOL OF MANAGEMENT IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN MANAGEMENT STUDIES AT THE MASSACHUSETTS INSTITUTE OF TECHNOLOGY JUNE 2015 @2015 Soo Jin Go. All rights reserved. The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part in any medium now known or hereafter created. Signature redacted Signature of Author: MIT Sloan School of Management Signature redacted May 8,2015 Certified by: Michael A. Cusumano (I SMR Distinguished Professor of Management Thesis Supervisor Accepted by: Signature redacted U Michael A. Cusumano SMR Distinguished Professor of Management Program Director, M.S. in Management Studies Program MIT Sloan School of Management [Page intentionally left blank] 2 Strategic analysis of Samsung's smartphone product portfolio: Countering the challenge from Chinese competitors By Soo Jin Go Submitted to MIT Sloan School of Management on May 8, 2015 in Partial Fulfillment of the requirements for the Degree of Master of Science in Management Studies. ABSTRACT After entering the smartphone era, Samsung has recorded enormous growth in sales and profits. It developed state of the art hardware technology and introduced innovative features with its flagship models, the Galaxy S series. While it emphasized high-end product development to compete with global vendors such as Apple, Samsung expanded its product portfolio to the affordable segment. In the early stages, this strategy succeeded in increasing revenues and market share. However, as Chinese vendors emerge in the global mobile device market, Samsung has struggled to keep its market share in the low-end device markets. Relatively cheap Chinese devices have attacked Samsung's affordable segment. Samsung's strategy of utilizing economies of scale and the halo effect from flagship models was not effective to compete against the price competitiveness of Chinese. Since the dynamic aspects of competition and the importance of platform are increasing, Samsung needs to build a new sustainable portfolio strategy integrating its platform service and hardware portfolio. Thesis Supervisor: Michael A. Cusumano Title: SMR Distinguished Professor of Management 3 [Page intentionally left blank] 4 Table of Contents A BSTRACTT ................................................................................................................................................................ 3 Chapter 1: Introduction ...................................................................................................................................... 8 1.1. M otivation................................................................................................................................................8 1.2. Objectives and m ethodology ...................................................................................................... 9 1.3. Sam sung Electronics overview ................................................................................................. 10 Chapter 2: A nalysis of the early sm artphone m arket...................................................................... 11 2.1. M obile devices m arket trend.................................................................................................... 11 2.2. The advent of Chinese vendors................................................................................................. 14 2.3. Sam sung's early sm artphone portfolio strategy................................................................. 15 Chapter 3: Analysis of mid and low-end segments in the smartphone market......................19 3.1. M obile devices m arket trend.................................................................................................... 19 3.2. A scending Chinese com petitors.............................................................................................. 23 3.3. Samsung's portfolio strategy for the mid-end segment................................................. 32 Chapter 4: Recom m endations....................................................................................................................... 38 4.1. N ew challenges in the m id and low -end segm ents............................................................... 38 4.2. Case study - Benchmarking Xiaomi's successful case ..................................................... 39 4.3. Sam sung's lim itations ...................................................................................................................... 41 4.4. Recommendation for Samsung's product portfolio strategy........................................ 42 Chapter 5: Conclusion....................................................................................................................................... 44 References............................................................................................................................................................. 46 5 List of Figures Figure 1. IT & Mobile Communications Division Revenue and Profit in Samsung.......9 Figure 2. Global Mobile Phone Sales: Smartphone vs Feature Phone 2008-2013 .... 12 Figure 3. Global Mobile Phone Market Share 2007 - 2013............................................. 13 Figure 4. Galaxy S Series Sales Units...................................................................................... 15 Figure 5. Regional Smartphone ASP and Chinese Average Manufacturing Cost........16 Figure 6. Worldwide Smartphone Vendor Market Share 2011.Q1 - 2012.Q1........18 Figure 7. Sales of Smartphones by Region 2013-2018 .................................................. 20 Figure 8. Sales of Smartphones - Developed vs Emerging World .............................. 20 Figure 9. Smartphone Sales Units and ASP Trend ............................................................. 22 Figure 10. Smartphone Priceband Forecast Chart - Units ............................................. 22 Figure 11. Worldwide Smartphone Vendor Market Share 2011.Q3 - 2014.Q4 ......... 24 Figure 12. Smartphone Sales Units of Chinese Manufacturers..................................... 27 Figure 13. Smartphone Market Share in the Mid-end Segment - below $200 ........... 28 Figure 14. Smartphone Market Share in China 2012 - 2014....................................... 29 Figure 15. Mobile Phone Market Share in China 2007 - 2013 .................................... 29 Figure 16. Product Portfolio by Price - Huawei ................................................................ 31 Figure 17. Product Portfolio by Price - ZTE........................................................................ 31 Figure 18. Samsung's Smartphone Market Share by Regions....................................... 35 Figure 19. Operating Margin of Smartphone Manufacturers ........................................ 37 6 List of Tables Table 1. Worldwide Top Five Smartphone Vendors Shipments, Market Share and Year-Over-Year Growth 2011-2012............................................................................. 13 Table 2. Samsung and Huawei Low-end Smartphone in 2011....................................17 Table 3. Smartphone ASP Forecast in Region..................................................................... 23 Table 4. Worldwide Top Five Smartphone Vendors Shipments, Market Share and Year-Over-Year Grow th...................................................................................................... 25 Table 5. Mobile Phone Shipments by Region, 2012 and 2013 ..................................... 26 Table 6. Smartphone Main Components from Chinese Vendors................................. 27 Table 7. Samsung Galaxy S3 Mini, Galaxy S3 and Xiaomi Mi3....................................... 34 Table 8. Samsung Mid-end Smartphone Line-up ............................................................. 36 Table 9. Chinese Mid-end Smartphone Line-up................................................................ 36 7 Chapter 1: Introduction 1.1. Motivation Samsung Electronics announced an earnings shock in 2014. Its revenue generated is 206 trillion Korean won and profit is 25 trillion won. This result is called "earnings shock" because its revenue decreased 9.8% from the previous year and profit decreased almost 32% from the previous year. Most of the profit decreases are caused by a huge drop of revenues and profits of the IT & Mobile Communications division. Due to low demand for new products in the mobile market and keen competition from rivals like Apple's iPhone6, the IM division recorded a 15 trillion Korean won profit, half of its previous profits. Until this year, the mobile device business has been in a leading position to make most profits in the corporation and to raise brand image as a global leading technology company. After launching Galaxy S in 2010, mobile devices have increased their share of revenue and profit in Samsung internally (up to 60.7% and 67.8% of revenue and profit, respectively), as well as in absolute money amounts. The strategy of Samsung to expand its smartphone portfolio to the low and mid-end range also contributed to increasing its market share as well as