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Samsung’s profits demonstrate how much Apple could be making in TV market

Daniel Eran Dilger

Headlines are blaring that fact that Samsung sold twice as many smartphones as Apple in the June quarter, but they’re less vocal about the fact that Samsung only earned half as much as Apple. Is it time for Apple to copy Samsung’s HDTV operations? Oh God, no.
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Samsung announced $4.5 billion in net profits for the June quarter, while Apple earned $8.8 billion. Of course, the business mix of the two companies don’t perfectly overlap, outside of both making the iPhone and iPad. However, smartphone devices make up the fastest growing and most profitable segments for both.

Samsung also makes appliances, HDTVs, flat panels and has a big semiconductor business, of which Apple is one of its primary customers (if not still the largest). However, Samsung’s chip business isn’t doing all that great, in part because Apple is actively moving its business to new suppliers.

But Samsung does offer some glimpse in how much more money Apple could be making if the Mac maker were to jump in to the HDTV business as a variety of analysts have been predicting for several years now.

Nothing to speak of, that is.

Granted, before Samsung started making components for Apple’s iPhone and iPad (and then began making its own knockoffs of those products in house under the “Galaxy” brand) the firm was making virtually nothing in the smartphone and tablet business, too.

Shortly after the iPhone was announced, Microsoft’s chief executive Steve Ballmer scoffed at while promoting two Windows Phone models that looked like a Blackberry: the Motorola Q and Samsung’s BlackJack. Both are less relevant than RIM itself now.

Samsung’s partnership with Microsoft to make a $1300 Windows powered tablet named the Q1 was also a spectacular failure, in large measure because it copied everything (down to the price point) of the 1994 Newton MessagePad (which hadn’t worked out so well itself, ten years before the Q launched). It was even less successful.

After slavishly copying every detail of Apple’s iPhone and iPad, from retail box to form factor to software and user interface concepts, Samsung is now the most successful of the Android licensees. There’s a one-to-one relationship between success and copying Apple (just ask Microsoft!).

Could Apple now demonstrate to Samsung how to turn its moribund HDTV business around? Probably not, for reasons I’ve stated before. HDTV panels are big, are expected by users to last for many years, and have little differentiation potential apart from a superior user interface, but even that isn’t certain to offer Apple a price premium or a better margin than its entrenched competition.

Apple would have to dredge out an entirely new distribution channel because its current shipping lanes are oriented around small products that are easy to stock, ship and sell to shoppers who walk up to its relatively small retail stores.

If the company is going to make major changes to its product mix, why not at least select a product category that is potentially profitable and has significant untapped demand, as it did when introducing the iPod, iPhone and iPad?

4 comments

1 The Mad Hatter { 07.27.12 at 10:20 am }

Ah, but Apple doesn’t charge a price premium on any of their products. I did an in depth evaluation of Apple pricing, and across the board it is the SAME as its competitors prices (within a few percent). Sometimes Apple is marginally cheaper, sometimes Apple is marginally more expensive.

Take the iPad for example. Apple sells the base unit for $500.00, which is exactly where I predicted they would price it. There is no premium involved. That the tablet makers selling Android tablets can sell units cheaper is no surprise, because when you look at the build quality they are trash. Apple doesn’t make trash.

There is no Apple price premium. Anyone who bothered to do ten minutes of research would know this, and I’m surprised to see you spouting that hoary old shiboleth.

Wayne
http://madhatter.ca

2 TheMacAdvocate { 07.27.12 at 10:53 am }

Samsung isn’t the only manufacturer to be bombing – all of them (with the possible exception of Vizio) are. The HDTV business existed in a no-margin market that has already raced to the bottom. Apple already makes a device that brings all of its iTunes content to any HDTV. There is zero reason for Apple to do anything more than build on that. The fantasy of the Apple television is one of the biggest analyst tugjobs out there.

3 danieleran { 07.27.12 at 10:57 am }

The iPad is no more expensive than other makers’ similarly specced tablets. However, Apple can ask for a premium in tablets and smartphones and sustain high sales volumes.

While Samsung and other makers all produce models similar in price/specs to the latest iPhone, the bulk of what they sell is low end, cheaper devices.

That’s why Samsung, one of Apple’s few, best performing competitors, could ship 2x as many phones and yet make half as much profit.

Apple’s prices may not appear significantly higher to consumers, but their ASPs are higher, their profit margins are higher, and their mix of premium devices are way higher.

4 The Mad Hatter { 07.27.12 at 11:24 am }

However, Apple can ask for a premium in tablets and smartphones and sustain high sales volumes.

But Apple doesn’t ask for a premium, which is a damned smart move on their part. Because the iPad is priced reasonably, they sell a hell of a lot of units. In the first year of production they sold more iPads than the total of Microsoft Windows tablets that had been sold in all the prior years that Windows for Tablet Computing, or whatever it was called, was on the market.

Consider MacBook pricing – generally MacBooks are marginally less expensive than equivalent products from Dell and HP. In addition they come with a wide variety of software that makes them far more useful (as does the iPad).

It is CHEAPER to buy and operate a MacBook than a Dell or HP even in the very few cases where the competing unit might be less expensive, when you take into account the security software you need to run on a Windows machine, and the amount of time you spend screwing Round with Windows to try and get it to function properly.

Apple does not charge a premium.

They could – but the company is too smart to do that. By selling the computers at competitive pricing, they are picking up market share, at least in North America and Europe. In Canada Apple has hit 25% market share for “personal” computing (i.e. ignoring business use). As long as they keep on delivering, and don’t mess with the pricing, they’ll continue to push Microsoft into a corner.

Wayne
http://madhatter.ca

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