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Samsung's new Galaxy S III phone. (Bebeto Matthews/AP)
Samsung's new Galaxy S III phone. (Bebeto Matthews/AP)


Samsung raises stakes in global smartphone battle Add to ...

Once a week, executives from every Samsung Electronics Co. Ltd. national headquarters around the world get together on a conference call to discuss inventory. The call covers all regions and all Samsung products, from cameras to televisions to dishwashers.

The conference call, like almost everything else the company does, is part of Samsung’s obsession with controlling its supply chain – an obsession that is starting to pay off in a market in which it was a just a minor player only four years ago: smartphones.

As Research In Motion Ltd. continues its downward spiral – it will almost certainly report its first quarterly operating loss in eight years on Thursday – much of the narrative has been about how the Waterloo, Ont., company was outgunned by Apple Inc. With far less attention, Samsung, as the world’s top maker of Android phones, has also done significant damage to RIM and to the popularity of its once-dominant BlackBerry.

For all the growth in the smartphone market over the past three years, only two companies are currently generating any kind of meaningful profit from the devices. Apple, of course, is the leader, keeping 73 per cent of all handset industry profit in the first quarter of this year, despite having only 9 per cent of handset market share, according to Canaccord Genuity research. Samsung is the other. According to Canaccord, the electronics giant generated 26 per cent of all handset industry profits during the same quarter.

Of every dollar of profit in the cellphone industry, Apple and Samsung keep 99 cents. Everyone else, it seems, is losing money or fighting for scraps – even companies that, like RIM, once generated large profits from selling handsets.

Samsung did it by recognizing a shift in the market that RIM was slow to grasp.

After the iPhone’s launch in 2007, consumers began to favour touch-screen phones that were far more than messaging devices, on which they could play music and video and surf the Web with ease.

“Samsung committed early to the [touch-screen] category,” said Kaan Yigit, president of Solutions Research Group. “RIM was too vested in its own category. ... It bet on its own horse. That’s why incumbents get hammered when the winds change.”

As it positions itself as Apple’s only serious competitor, Samsung’s smartphone division is getting ready for what will be perhaps the most critical summer in its history. Not only is the company releasing its highest-end smartphone to date – and spending millions to promote it during the Olympic Games – it is also locked in a high-stakes legal battle with Apple that threatens to halt its market momentum just as it starts to pick up. Indeed, just this week, Apple managed to convince a U.S. judge to issue an injunction halting the sales of Samsung’s flagship tablet in the country – an ominous sign.

Samsung’s success – even though it may prove to be very temporary in the fast-moving world of mobile devices – is a rarity among companies that build phones and tablets running on Google’s Android operating system. Because Android is essentially free, dozens of manufacturers have adopted it, creating a glut in the marketplace and driving margins down.

But Samsung has so far managed to leverage its massive manufacturing infrastructure to keep its costs under control. Whereas many of its competitors have to go elsewhere for components, Samsung builds almost every part of its smartphones in-house.

“We don’t have to rely on others for the core components, and that allows us to have control over the product,” Mr. Politeski says. “Consumers have a choice, and market share doesn’t lie.”

Still, Samsung faces a host of challenges. In addition to the myriad companies offering competing Android devices – including Motorola Mobility, which was recently purchased by Google – a slew of Windows-based phones are due out in the coming year.

In addition, Samsung and the Android operating system face a series of lawsuits that could threaten the company’s very presence in the market.

In the coming weeks, consumers will face an onslaught of Samsung advertising, in large part because the company has paid millions to sponsor the London Olympics, and plans a blitz during the games to promote its new Galaxy S III smartphone, released in Canada on Wednesday.

But for all Samsung’s Olympic advertising, its flagship Android smartphone isn’t all that much of an improvement over some of the other high-end Android devices that have hit the market in recent months. And yet Samsung remains not only the biggest Android smartphone maker, but the biggest overall smartphone maker in the world.

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