VVVOLUME SSSKEWS SSSMART PPPHONE LLLEADEREADERSSSS It takes 25 times the models to put ahead of Apple

ariety may be the spice of life Apple phones run one , but in business it can work iOS. Samsung phones range from basic V against profitability. The variety flip phones running rudimentary OSs to of cell phones models being sold by exotic touch screen handsets running leaders Samsung and Apple reveals very Windows, a homebrew OS, or the 31

different approaches to their business. flavors of Android. The differences in Apple is highly focused while Samsung these OSs are immense even if many is all over the map. The underlying user features appear similar enough to semiconductor industry greatly favors justify legal battles. APER fewer varieties to capitalize on

P economies of scale. Looking inside the handsets exposes a similar tale of single-mindedness for Apple and a mish-mash at Samsung. Apple specifically designs its own appli-

HITE cations processors (appls processors), the central chip that puts the smart in the W phone, executing the reams of computer code that dance between OS manage- ment, graphics creation, image process- NALYSIS

A Apple has offered no more than three (3) phone models at any point in time, phas- ing out prior phones almost overnight as the new models are introduced with great fanfare. There are no low-end Ap- ple phones, and they all operate essen- BJECTIVE tially the same way. On the other hand, O Samsung has risen through the phone ing, music reproduction, email, Web ranks by offering a wide variety of cell browsing, the hallmark touch screen user and smart phones. Over 150 Samsung interface, and even the occasional phone models show as active, just in the USA, call. Apple has used its A4, A5, A6, A7 capped by the Galaxy S series (not all … appls processors in all of its handheld 150 models may qualify to be called devices. “smart”). Current models of wireless Samsung products use an assortment of phones are given in the tables below. different appls processor chips. While

Copyright 2014 Objective Analysis www. OBJECTIVE -ANALYSIS .com simpler phones need only modest proc- Table 1. Current Apple U.S. Phone Models essors, Samsung engages Texas Instru- iPhone4s iPhone5c iPhone5s ments OMAP, Snapdragon, (A5) (A6) (A7) and appls processors (applications processor noted in parentheses) across its smart phones. Each of these Source: Apple Corp. are families of processors, offering dif- ferent functional capabilities along with Table 2. Sampling of Current Samsung U.S. their increasing-over-time baseline per- Phone Models formance. Perhaps most surprising is A157 Array Gravity Q that Samsung's semiconductor organiza- M370 ATIV Odyssey Gusto tion has designed and marketed its own M400 ATIV S Neo Haven family of appls processors, , yet R375c Brightside Intensity Samsung itself has barely started using it R455 Caliber Jitterbug in its own handsets (and essentially no S125G Chrono Messager other OEM uses it either). While all of S150G Comment Mondi the named processor chips are based on S275G Continuum Montage ARM core architectures, there is still S380C Contour Reality 90% of these SoCs that are very unique. S390G Convoy Replenish S425G Denim Restore Apple handsets were initially available T159 DoubleTake Rugby only through AT&T in the United States. T404 Entro Smiley Astonishingly, and in testament to the Focus Smooth distinction of the original iPhone, this Freeform did not limit the sales nor market domi- Galaxy – nance of the product line. What it did do Admire II is let Apple deal with a single network Amp Note 3 S III carrier and its air interfaces and one Appeal Note II S III mini sales channel (later supplemented with Axiom Prevail S 4 Apple Stores and then additional carri- Centura Proclaim S 4 mini ers). This eliminated the distractions of Discover Reverb S 4 zoom reworking circuits and policies for mul- Exhibit Ring S Aviator tiple distributors in a multi-tiered eco- Exhilarate Rugby S Blaze system. Express Rush S Lightray Legend Stellar S Relay Samsung phones are available through Light Stratosphere numerous carriers and outlets. Mega Victory Metrix Few vs. Many most names are ™ or ®, omitted from table for clarity Source: Samsung The ultimate impact of using few versus many designs is cost. While giving the customer the greatest choice sounds That's the beauty of computer processors good, this comes at increased cost for and their infinitely alterable software. A design, development, materials, support, dozen people might buy the same PC manufacturing, inventory, logistics, and and use it for a dozen completely differ- overall management. Whether it's gro- ent tasks, depending on the software cery store shelf space, automobile color each runs. Yet rather than building 12 and option packages, or clothing styles, unique boxes, the hardware manufac- the management of each additional turer reduced costs by negotiating better choice can gut profits even if it might pricing on a dozen identical sets of com- seem to sell a few more units. ponents and learning to build a dozen identical boxes a little bit better.

Copyright 2014 Objective Analysis www. OBJECTIVE -ANALYSIS .com The software vendor faces a more diffi- for the one chip that will sell billions cult situation. It may take a dozen dif- rather than a thousand chips that will sell ferent vendors to create the programs for millions. It is all an ongoing cost trade- the unique needs of each end user. This off business decision balancing time, carves the market into smaller pieces for effort, and investment against sales, the software folks. However, since all market share (or mind share), and profit- those PCs have identical components, ability. Memory chips epitomize the some commonality among software ven- billions end of the spectrum. dors may afford advantages in sharing or building on top of one another's pro- Complexity and Mobile grams, even if the end uses are quite dif- Phone Realities ferent. Smart phones can be viewed as more Semiconductors and the Law diverse and complex than a computer. The variety of tasks smart phones per- The industrial revolution took advantage form are extraordinary from “simple” of the uniformity of machine output. telephony (it isn't) to multimedia capture Henry Ford made automobiles afford- and re-creation to Internet activities and able by dedicating people and machines the open door that “apps” expose – all on to a specialized task at which they were an extremely low power budget from a able to get extremely good – moving up tiny physical space. The software that the “learning curve.” Today, semicon- performs each of these tasks is very so- ductors epitomize true economies of phisticated, and management of the mul- scale like no other industry. While the tiple tasks that take place at the same observation of the trend over time in time using common resources is ex- chip density known as Moore's Law is tremely complex. Once the software is often misconstrued, its effect is the result mostly right, the last thing a company of a lot of hard work and advancements wants to do is change it. in technology that have a remarkable benefit to the functionality – and there- It is a huge effort to port (convert) that fore cost savings – of the next iteration much software to new hardware, expo- of chips. All of this is driven by volume, nentially more difficult as the differ- be it the mass production of clocks, cars, ences increase. Each change, correction, or electronics. Nowhere has it been and upgrade to software for one architec- more clear that electronics delivers more ture or one chip must be performed for “bang for the buck” with each passing all other chips as well. Each different year. architecture and chip is likely to require changes made a different way. Revision The ideal semiconductor to manufacture control, documentation, and long term is identical to the last million semicon- support are significant efforts as well. ductors that were manufactured. Mate- Each hardware change magnifies the rial cost reductions, re-use of equipment, problem, whether it is a different and “learning” all contribute to quality size/shape/resolution display, touch in- improvements and long-term amortiza- put, camera (image sensor), position/ tion of costs. If the next chip to be motion sensor, or image/video/audio/ manufactured is a little different than the motion accelerator. All changes must be last million, or the same with 25% new validated across a matrix of hardware circuits, or completely different though combinations, use modes, and time- vaguely similar, then the learning is pro- based multi-tasking/shared-resource sce- portionately disrupted and cost benefits narios. deteriorate. Semiconductor vendors look

Copyright 2014 Objective Analysis www. OBJECTIVE -ANALYSIS .com It is not unusual for 80% of a system de- front page images.) Lower-grade feature sign team to be software programmers phones add 800 million to the total of with a minority being hardware design- which 150 million were Samsung's but ers. It is more likely those programmers Apple sells only smart phones. will be on the job for years after the Apple gets its 15% market share with product is in the market, fixing, recon- just three models of smart phones and figuring, updating, and enhancing fea- while Samsung takes 30% of the market, tures. The cost of these programmers is it must produce 150 models of smart difficult to assess, and its burden tends to phones to do so. Simple division shows fall on subsequent products for amortiza- that Apple averages 50 MU per handset tion. model while Samsung averages just 2 MU per model. That's a 25x difference! Minor Effects It took 25 times more phone designs for Some features have little real impact on Samsung to sell twice as many units, and product cost while others are necessary the ratio is far worse when non-USA evils. Painting an entire car and coordi- models are added in. nating the interior upholstery is a major effort. But whether the exterior case of a Profitability of the Few phone is black, white, or pebble blue, So many factors all point to the same however, is a last-second decision with conclusion: it costs less to serve a mar- no appreciable cost impact. It is curious ket with a few robust products than serv- that a spread of colors for the recent ing it with many products using many iPhone was news, when most people components needing many rehashes of personalize and protect their phones by software. Judging success by market throwing on a $5 plastic cover anyway. share does not tell the whole story. As Memory choices of 16GB or 32GB re- shown, the differences between Apple quire no particular change to the hard- and Samsung can be striking. ware or software, and an express price The approach to business that Apple has adder covers the memory differential taken aligns well with the semiconductor while giving the user measurable storage industry's principles, scientifically benefits. rooted as those are. Yet Apple has also To enter some markets or geographies, revolutionized products with imaginative the radio “air interface” and protocol innovation, firing up markets that were must match the carrier or the country's significant but muddling along. Apple network standard. This is an unavoid- did this with nearly singular products, able requirement, so any vendor will and when they proved to be successful, it need to swap in the right transceiver to didn't proliferate dozens of similar prod- serve each market. True software de- ucts but kept focused on extremely few. fined radios have difficulty competing Apple's approach has served the com- with the dedicated approach. The radio pany very well. Apple's customers are modules can be shared across different extremely loyal, and the company's bal- phones to gain benefits of scale. ance sheet would be enviable in any in- dustry. A Little Math A person has to wonder how Samsung In round numbers Samsung sold 300 can be as profitable with 150 phone million smart phones in 2013 while Ap- models as Apple is with just three. ple sold 150 million out of a total market of nearly 1,000 million (illustrated in the Tom Starnes , February 2014

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