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Can Samsung innovate?

Jay Alabaster | March 6, 2013
The Korean giant now dominates the smartphone and tablet era, but it is built for steady progress rather than big breakthroughs.

Samsung later said it sold 10 million units of the "phablet" in nine months, creating a new sub-category, and is now gearing up for its third iteration of the device. A host of rival companies, including Korean competitor LG, Asus and Huawei, have since announced their own oversized phones, and IHS iSuppli now estimates that 60 million phones with screens 5 inches and larger will ship this year.

"It's a shotgun approach," said Rassweiler of IHS. "The best way to test it is to build it and see if they come."

Samsung's ability to make most core hardware components in-house, and its deep pockets, mean it can gamble on devices like the Note. They also give it a massive advantage over competitors.

When you make calls or flick the screen of an iPhone, the bits produced take a virtual tour around the tech world -- the screen may come from Sharp's factories in central Japan, the processor from Samsung's plant in Texas and the assembly completed at the massive Foxconn complexes in China.

In Samsung products, teardowns show that over 80 percent of components are made by the company itself. Consumers may be not able to tell the difference in a finished product, but this greatly reduces the time it takes to get a product to market.

"If you really look at it as who can compete with Samsung in terms of vertical integration right now, the answer is nobody. Nobody's even close," said Rassweiler. "No one can hold a candle to them in terms of in-house ability."

Some say that Samsung's status as a top component supplier can give its in-house products unfair advantages, such as first crack at new items in short supply. The company, which famously counts even bitter rivals like Apple among customers, maintains it is client neutral.

"Components like OLED displays have been monopolized by Samsung Mobile in the past," said Won Seo, an analyst at Korea Investment and Securities. "But even though there is some conflict in interest between its component business and handset business, Samsung so far has managed this quite well, with independent businesses."

A Samsung spokesman emphasized that the company maintains strict firewalls between its component and product businesses, and that the two operate completely separately.

Samsung's broad range of devices also means that it can compete in widely different markets. In smartphones, the company is strongly competitive in advanced markets in the U.S. and Europe, and is still the dominant vendor in emerging China, where Apple lags rivals.

In nearby brand-conscious Japan, however, Apple is now the market leader, while Samsung has struggled. The Korean company is pouring much of its recent record profit into marketing, however, and was recently named the strongest smartphone brand by researcher Brand Keys.


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