Samsung is looking to move away from its sole focus of hardware, transitioning into a software company. The move, which has been in the works for a while, culminated in the replacement of Samsung’s smartphone head yesterday.
However, some analysts are saying that this narrative is wrong.
“I think that Samsung is very well positioned,” said Susana Santos, an analyst for IDC. “Even if it faces challenges because the market isn’t growing, it is well positioned.”
The start of 2015 was rough for Samsung, with two quarters of falling revenue but the third quarter — which came directly after the launch of the S6 handset — saw more positive results, growing profits to $6.4 billion (£4.3 billion). The S6 Edge, which features a unique curved display, has been a hit.
“In the Android space, Samsung has been able to keep its share of the market,” said Santos. “It has been the likes of HTC and Sony which have suffered.”
A report from Bloomberg suggests that the incoming head, Koh Dong Jin, brings with him a new focus for Samsung, moving the company’s mobile division away from hardware — which makes up all of its revenue — and towards software, such as mobile payments.
“[Samsung has] established a strong position as one of key technology’s leaders in mobile devices but they need more sustainable differentiation and distinctive value attached to their devices this can only come from a shift to software and services,” said Roberta Cozza, an analyst for Gartner, in an email.
“Based on Koh’s career background, it suggests Samsung will put more weight on its software focus instead of hardware,” said analyst Greg Roh. “The change shows that just the new cycle of hardware offerings won’t do much to revive growth. The new leader will try to boost software power and foster new innovations.”
Apple has diversified its offerings away from hardware, introducing new initiatives including an iPhone upgrade programme — in which users pay $32 (£21) a month and receive a new phone every year — Apple Pay, and Apple Music, a Spotify-like subscription service.
Analysts for Goldman Sachs pegged Apple’s potential revenue from this subtle shift at $7.6 billion (£5 billion) per month, without breaking a sweat. It’s clear that Samsung wants some of that.
Under Jin, who previously worked on Samsung Pay, the company will likely move toward offering better software products, many of which will come with a subscription, increasing the revenue generated per device.
Apple, which already makes around $200 (£133) on every iPhone, also has the benefit of offering the App Store, iTunes, Apple Pay, and more, all of which generate the company revenue. The software and services division of Apple — which includes exactly these things — recorded $5 billion (£3.3 billion) in revenue during Q4 2015.
“The biggest threat to Samsung is definitely the competition on the lower end,” said Santos. “Local players, such as Xiaomi, have been successful in entering local markets.” Samsung is leaving these markets in 2016, according to Santos, lowering the company’s exposure to these risks.
“The shift to software is necessary and will be a challenging one for Samsung,” said Cozza. “Samsung will need more resources and expertise devoted to this and a truly transformative strategy that will be able to generate software improvements that truly puts the user experience at the center of everything they do.”
Samsung has a difficult path ahead, but the company’s new focus on moving to monetise users who buy its phones is smart and the appointment of Jin shows that the company is willing to make changes, even if it incurs bad press.