In a piece, titled “Samsung’s Circular Profit on Apple”, I explained that Samsung is largely indifferent, strategically, to the performance of iPhone X because no matter the outcome, Samsung will have a win.
Technically, Apple is equipping its main competitor. For Samsung, that iPhone X is selling very well is not really a bad thing, since that means Apple will need more display and memory chips from it. And should Apple struggle, Samsung can easily fill-up the gap since it has its own big smartphone business.
Samsung has businesses that cover semiconductors, displays and practically any major area you will imagine in modern electronics (used broadly) business. With that exposure, it has become extremely diversified that Samsung Group can weather any storm in its subsidiaries including the mobile business, which makes Galaxy devices.
The legendary Chairman of Samsung, Lee Kun-hee, few years ago put money on the table to build new businesses that will generate billions of dollars in new revenue. One of those areas is making generic drugs. Another is in automotive sector. Samsung bought Harman International for $8 billion earlier in the year. Harman makes audio systems and other elements for connected cars.
HARMAN (harman.com) designs and engineers connected products and solutions for automakers, consumers, and enterprises worldwide, including connected car systems, audio and visual products, enterprise automation solutions; and connected services. With leading brands including AKG®, Harman Kardon®, Infinity®, JBL®, Lexicon®, Mark Levinson® and Revel®, HARMAN is admired by audiophiles, musicians and the entertainment venues where they perform around the world. More than 25 million automobiles on the road today are equipped with HARMAN audio and connected car systems. The Company’s software services power billions of mobile devices and systems that are connected, integrated and secure across all platforms, from work and home to car and mobile. HARMAN has a workforce of approximately 30,000 people across the Americas, Europe, and Asia.
Certainly, we all know that the automotive sector is going through a redesign. Samsung wants to be at the heart of it. With its new position, Samsung has created a new market for Galaxy devices inside cars. While Apple will be looking for strategic partnerships, Samsung has one, organically. All Harman products now will work in sync with Galaxy devices and that will improve the experiences of users as they transition from homes into their cars.
I do not know much about South Korea, but it seems that its stock market is unique. Unlike Wall Street, it looks like companies are given the freedom to build businesses for ages through clusters of diversification which may not be possible in U.S.
The Platform Company
In the platform business model, there is a new formation here: if Samsung, on the strength of Harman acquisition, takes a lead on connected cars (that is possible with its experience in mobile), it could impose a tax on players that connect to its ecosystems. Google has its tax through Android and Google Play. Apple has got its own through iOS and App Store. Amazon is working on one via Echo/Alexa. Samsung may be looking at building one for automotive. The promise of Bixby, its voice assistant, may be to dominate the connected cars sector, and what happens inside cars.
Each of the big technology firms wants a platform because in the near future, we will simply have only IT utilities. Many platforms already exist through the likes of Facebook, Google and Amazon. Just few are available and Samsung wants to take the car one. Samsung is buying into this opportunity as more M&A may be on the way, as Young Sohn, chief strategy officer, noted: “We are committed to using M&A as our tool.”
The Complete Loop
The photo below shows what Samsung has in mind: it wants to close the loop; connecting homes, cars, people, and everywhere else with its technology. That is the grand vision. It will be a tough battle because companies like Conti and Bosch will not give up on cars easily. Even Bose, which is a great audio making company, has a stake. But one thing is clear: despite Apple which is after our persons, Amazon for our homes, Samsung is the only company that is mapping to connect all the nexus of our lives (person, home, car, anywhere), at scale. If it succeeds, it would have built the ultimate platform. It can then impose taxes to provide access to other entities.
With Harman acquisition and possibly new ones to come, Samsung is well positioned to offer a top-grade ecosystem for OEMs to build on its platform for cars, homes and of course persons. And as it does that, it will continue to make chips, making sure that even if it cannot sell its final products, any major player that wins will need its microprocessors. There is no better way to tax an economy than to power it. The world will pay you tax, as you have circled your competitors. Samsung is a fine company.