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Bloomberg’s breathtaking propaganda piece suggests trouble for Samsung

Daniel Eran Dilger

An article written for Bloomberg by Jun Yang, Anand Krishnamoorthy and Jungah Lee seeks so desperately to distract from Samsung’s looming crisis that it bends facts backwards and rewrites history with the careless abandon of a North Korea state reporter, drawing attention instead to the curious lack of reality that the company’s defenders exude.
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The article, curiously titled “Samsung Girds for Life After Apple in Disruption Devotion,” starts off sounding like a description of how Samsung plans to cope with the loss of its biggest customer and how it will focus its strengths to remain a top competitor in the global market for consumer electronics.

But by its fourth paragraph, it’s clear the authors are instead trying to create a vast smokescreen of preposterous nonsense to glorify the firm’s supreme leaders and revile Apple as a ugly Western blight on civilization.

Which pioneer was disrupted?

Under the subheading, “Goodbye, Old Fruit,” the trio of Bloomberg writers say “Samsung has zoomed past Apple in the smartphone market that the U.S. company pioneered.”

Whoa! I thought Samsung was making smartphones before 2007.

In fact, recall that when the iPhone was first announced, industry pundit John Dvorak complained it was “trending against what people are really liking in phones nowadays, which are those little keypads. The Samsung BlackJack, the BlackBerry obviously pushes this kind of thing.”

So rather than “pioneering” the smartphone market, it was really Apple that disrupted it. And the smartphone market that Apple disrupted had Samsung’s designs all over it.

Why are the authors suggesting that Samsung is disrupting a market Apple “pioneered”? The only possible explanation is to seed the idea that Samsung is not clawing its way back into relevance, which it most obviously is, and is instead a fresh new force disrupting the boring status quo of the iPhone that has been around as long as we’ve been at war with Eastasia.

Fun with numbers: Bloomberg vs Bloomberg

Not content with simply reimagining smartphone history, the Bloomberg writers next try to use tablet market share facts to portray Samsung as having recently made huge new inroads on Apple’s iPad. Unfortunately for their version of events, Bloomberg is already on the record as having contradicted those “facts.”

“In tablet computers, the market Apple created with the iPad, Samsung doubled its market share in the fourth quarter [2012], to 15 percent from 7.3 percent a year earlier,” Bloomberg now says.

But wait, didn’t “Android” take 22% of the tablet market at the end of 2010? That’s what Bloomberg told us two years ago, quoting somebody who said that “the Samsung Galaxy Tab was the main driver of Android success [in the tablet market].”

That was Neil Mawston, the director at Strategy Analytics, who counted the 2 million tablets Samsung said it shipped that year. In fact, Samsung accounted for 2.0 million of the 2.1 million Android tablets that shipped that quarter. Only 0.1 million Android tablets had shipped in the previous quarter, making it really simple to do the math of where all those new shipments were coming from.

So how is it that Samsung is “doubling its market share” if it started with a 22 percent share at the end of 2010, but now only has a 15 percent share of the market two years later? Sounds more like Samsung is actually losing the tablet share it once claimed.

Falling down the factual rabbit hole

In an article based almost entirely upon soundbites from Samsung’s investors, the authors first tell us that it won’t pose much of a problem for Samsung to lose Apple’s component business. Samsung doesn’t need its biggest customer, because it “will make another big push into tablets, its multiple products driving sales of components and making up for any losses from Apple.”

Wait, what? If Samsung can just leap from “shipping” 15 percent share of the world’s tablets to selling closer to 100 percent, fueling its own component production, why didn’t it do this back in 2010? Why all the dicking around while Apple earns all the profits in the tablet market? Why didn’t the company get serious before? Doesn’t Samsung know it’s wearing the magic ruby slippers?

On the other hand, the authors grimly note that Apple is in big trouble because “Apple needs Samsung’s processors to avoid shortages of iPhone and iPads.” Too bad Apple didn’t think ahead and build its iOS devices from commodity parts, rather than designs proprietary to Samsung. Oh but wait, it did.

Certainly, Apple will face some hurdles in moving its massive orders from Samsung. But when you’re producing billions of dollars of components, it’s also hard to find another customer selling tens of millions of smartphones and tablets that needs your products. In fact, there’s only two companies doing that every quarter: Apple and Samsung. If Samsung loses Apple, it will be left building only its own components, and the cost of building those components will be vastly higher, due to sharply lower economies of scale.

On the other hand, Apple sells tens of virtually guaranteed millions of tablets and smartphones every quarter, and has $137 billion in incentives to redraw the lines of global production. Ask any business person if they’d rather be in Samsung’s position or Apple’s. If they say Samsung, you can probably sell them a bridge.

Grandson, come solve the biggest problem ever

“Weaning Samsung away from its relationship with Apple is a task that will increasingly fall to Lee Jae Yong, the 44-year-old grandson of the company’s founder,” the report notes. Well that’s reassuring! Perhaps the biggest shift to occur in the history of the technology industry will be handled by a relatively inexperienced new guy, but at least he got his job through some good old fashioned nepotism, rather than being recruited by Steve Jobs.

The article then tells us that the company’s “phone division now accounts for almost 70 percent of Samsung’s operating profit.” But wait, it sounded like Samsung was such a well oiled machine in building components! How is it that it’s making nearly all of its profits from smartphones? And if it incurs any loss in profitability due to missing, say, half of its orders, how might that tilt the scales?

No worries, because “Samsung is focusing on integrated processors, memory chips and display screens to capture more of the smartphone and tablet market,” the report assures us.

A möbius solution! Samsung is “focusing” on components, while also “making a big push into tablets.” Just work on everythign and it all falls into place. Pity it didn’t come up with that omni-solution before.

Who needs customers when you have of lots of platforms?

More good news for Samsung: “Unlike Apple, Samsung isn’t locked into any system — including its own. That gives the Korean company insurance against missteps by Google and time to keep working at its own software designs,” the writers assure us under the heading “Insurance Policy.”

It’s a good thing Samsung isn’t tied to Google’s Android. I mean, imagine if Samsung had been tied to Symbian, or Windows Mobile, or its own Bada, or Windows Phone, or its new Tizen. That would have been disastrous.

With such freedom to skip between and among massive failures, Samsung has the peace of mind that Apple can only dream about as it sits in solitary confinement with iOS, the world’s most advanced mobile operating system with a distant lead in enterprise adoption and every other market from games to productivity apps.

Unlike Samsung’s pantheon of mobile platforms, Apple iOS is terrible at sitting on the shelf unsold. And that’s a critical segment of the tablet market, just ask IDC, Garter and Strategy Analytics. Without counting unsold inventory, the tablet market would appear to be entirely made up of iPads.

One can only imagine that Apple would prefer to be a licensee of both Google and Microsoft and, on top, have a couple of its own failed platforms keeping its development staff busy with routine platform maintenance tasks.

That being the case, I wonder why Apple ever got rid of the Classic Mac OS, or mkLinux, or even GS/OS, ProDOS and Apple II DOS from the 1970s that all could be sitting around on the ready to give Apple some “insurance” from the potential failure of its single mobile OS platform.

A fund manager holding a 2.7 percent stake in Samsung let slip his concern that, “If they can be better at making software, of course, it’d be great,” before adding, “but it’s like expecting one company to be able to control everything.”

Yes, imagine that preposterous assumption! A smartphone and tablet maker maintaining its own OS! How ruthlessly absurd. Just ask HP about webOS, or maybe Google about Nexus, or Microsoft about Zune and the Surface. Or Apple about … well NEVER YOU MIND ABOUT THAT TRICKY QUESTION. LET’S CHANGE THE SUBJECT.

Apple only makes expensive, high end products

Bloomberg assures us that Samsung is targeting the sweet spot of the market, below the “top end” where Apple is facing direct competition from, supposedly, Google and Microsoft.

Oh wait, that’s not true at all. Actually, the article only claims that “Google and Microsoft are also among companies entering the top end,” without being so bold as to suggest that there’s any real competition. If there were, how would Apple be making more than three quarters of all the profits?

Not to worry, the authors tell us. There’s actually “faster growth in the middle of the range, where Apple hasn’t been competing.” Given that Apple is competing all the way down to the $450 iPhone 4 that sells on contract for $0, it would appear the middle of the range starts pretty damn low.

Is Apple going to compete in the very low end (aka the “Bloomberg middle”)? Bloomberg has heard this may be a possibility from “a person familiar with the plans,” although it says this with such uncertainty that the “person familiar with the plans” must not be too familiar with the actual plans at all.

Steve Jobs’ vow to always make expensive, large iPads

One thing the authors are sure of: “Tim Cook already reversed a vow by late founder Steve Jobs that the company wouldn’t introduce a scaled-back and cut-price version of the iPad.”

Never mind that Jobs never “vowed” any such thing. Instead, Jobs said back in 2010 that, of the avalanche of Android tablets that poised to enter the market, there were really “only a handful of credible entrants. They use 7 inch screens rather than iPad’s near 10 inch display.”

Jobs contrasted those mini “tweener” tablets with what Apple was offering, and said that those devices, with their wide screen, smartphone-style screen resolutions. wouldn’t be successful. “This size isn’t sufficient to create great tablet apps,” he said. Jobs was right.

Despite being accorded “22 percent” of the “tablet market” that quarter, nobody successfully sold them, not even Samsung, although its sales reports weren’t actually brought into the light until Apple’s patent case forced the company to reveal that its actual sell through was “quite small” rather than “quite… smooth” as it had lied to analysts at the time.

Jobs never so much as implied that the iPad wouldn’t get any cheaper or smaller. Instead, he debuted it with a “breakthrough price” that was about half as much as any other vendor had ever offered. Samsung’s Q1 tablet was priced at around $1100 at the time, for example. Jobs also touted how small and thin it already was, something the company incrementally made thinner and lighter, just as it’s done with every product it has ever sold.

Does it make a boldface lie less preposterous if you word it in an ludicrously confident but passive way?

A bizarrely insane history of the PC

Just as in smartphones, Samsung isn’t some new fresh company launching new products into the market. It is one of the oldest smartphone and tablet vendors on earth. It was battered into submission by the iPhone and then the iPad, and the only way it could make any recovery is by shamelessly aping every last detail of Apple’s products. It even needed Google to help it do this on the software end.

And it now apparently needs all the expertise of Korea’s propaganda machine to lie about every detail of the industry, its history, the present, and its near future. This particular article is so breathtakingly wrong at every step that it blows the mind.

Under the bizarre subheading “Apple followed,” the authors tell us that “the Altair computer is regarded as the spark behind the personal computer industry,” but then “Jobs and fellow Apple founder Steve Wozniak took over the market just two years later when they began producing the first Macintosh PCs.”

The Altar came out in 1975. It wasn’t the first spark, but was moderately influential in the tiny community of home-brew computer makers of the day. But the Apple Macintosh (which Wozniak had nothing to do with) didn’t appear until 1984. That’s not two years, it’s a decade. In between Apple released a series of Apple II systems. When the Mac did arrive, it did not ever even approach “taking over the market.”

Instead, the Mac remained an expensive experiment that took a couple years to even catch on at all, influencing Apple’s board to direct the company’s resources toward selling the profitable, but older Apple II line instead.

“By the early 1980s, IBM was the dominant player in an industry crowded with rivals,” the article then says, skipping through time like DVD player with a dirty lens. This ridiculous version of history makes it sound like Apple copied the Altar with the Macintosh (gasp), but was then clobbered by the IBM PC that actually arrived in 1981 and was well entrenched before the Macintosh even appeared.

But telling history backward and upside down makes it appear that perhaps Apple’s iOS is fated by the Law of the Repetition of History to fall to Android, unless Android is too much of a mess for Samsung, and in that case, whatever other platform Samsung has the freedom to adopt in its place.

Because we all know how easy it is to adopt and swap platforms. Just ask HP about webOS, or maybe Google about Chrome OS, or Microsoft about Windows CE and Vista and Windows 8 and Windows Phone. Or Samsung about Bada and Tizen and Windows Mobile.

Solutions for Samsung

But if Samsung can find a new customer with an appetite for billions of dollars worth of RAM and SoCs and the cold hard cash to pay for building the production capacity years in advance, it shouldn’t find it too hard to also ditch Android for a reliable operating system with the security credentials needed to be accepted by the enterprise and the development tools and established user base to provide it with a software library competitive with Apple’s App Store.

After all, once you saddle up a pig for flight, it’s no further stretch of the imagination to soar into the air and grab that gold at the end of the rainbow, and then its just a matter of picking out which unicorn you want to buy with your unlimited new wealth. Baby steps.

Similarly, Samsung will need to handle both its hardware and software issues right way, as it faces a market where all the easy upgrades to cheap, low end smartphones have been saturated. The company has warned its investors of this issue, which it says it will face THIS QUARTER, so no rush.

Ideally, Samsung could just come out with products that could compete with Apple on the high end, taking more of Apple’s fatty profits. But it has already tried this. Last year it introduced the Galaxy Note phablet, a product that combines a tablet with a smartphone, but delivers the profit margins of just one sale. This product is not Samsung’s biggest seller, however.

In the meantime, Apple released its iPhone 5, which like every other iPhone release, went on to set new records as the most popular phone ever. I’m sure Apple hasn’t ever wished it were instead selling more of its lower end, less profitable options.

But the thing is, Apple is also selling so many of its lower end iPhones that it can’t build enough iPhone 4 models to meet this demand. Oh the troubles Apple has. If only it were saddled with a massive, low margin chip fab business like Samsung, then it could build its own chips rather than have options as to which fab gets its business.

15 comments

1 broadbean { 02.12.13 at 2:02 am }

D,

You never play fair when you bring facts and figures into it.

2 The Mad Hatter { 02.12.13 at 3:29 am }

Apple as a ugly Western blight on civilization

Of course they see Apple as an ugly Western blight on civilization. I’ve sold to Korean multinationals, and am fairly familiar with corporate culture over there. They would not have any reason to love Apple.

But…

No one makes huge profits from components, except Intel. The setup costs are prohibitive. That’s the major reason that Apple, like nearly all electronics firms, uses contract manufacturers to fab chips. That’s also why almost all American microprocessors are made in Taiwan. Or Korea.

Bloomberg is an interesting source. On basic business news they often do a decent job. If you want someone to crunch numbers in a spreadsheet Bloomberg is a fairly good choice. But…

Bloomberg also has this nasty tendency to repeat corporate propaganda without fact checking it. And when the corporation is foreign owned, like Samsung, it can be really hard for the reader to fact check, unlike with an American corporation where you could reference the SEC report.

As to loosing Apple – it won’t hurt Samsung. Apple is eating a huge chunk of foundry capacity, which is pushing out a wide range of smaller customers, who actually pay more for the product because they are buying smaller runs. There aren’t many fab options, so anyone Apple displaces is likely to end up buying from Samsung.

As to Grandson, if he’s been working for the firm for twenty years, and he probably has, like his father before him, why wouldn’t he have the experience? This is a Korean tradition, and it works often enough.

Yeah, Bloomberg is a bunch of klutzes. Remember Sturgeon’s Law, 90% of Everything is Shit.

Wayne

3 bft { 02.12.13 at 6:30 am }

From the comments section of the Bloomberg article:

“Actually, I am a Korean myself and I had an opportunity to work with Samsung when I was with SK Telecom at the start of my career (I am living in Canada now and working for the federal government). I can attest that everything that you say about Samsung being a benevolent patriotic company that doesn’t even care about making profit is an outrageous falsehood. They were in fact the worst penny pincher and backstabber that I had ever seen. “

4 NormM { 02.12.13 at 8:44 am }

Fun and factual as usual, Dan! One thing I would say, though, is that Apple too may end up owning some fabs. They’ve just had the lesson of helping Samsung become a major competitor by getting their most competent supplier to make too much stuff for them. It didn’t make sense for them to spend time and money on fab related research when they were smaller, but it does now that they use a significant fraction of the world’s high-end fab capacity.

5 jmfree { 02.12.13 at 8:57 am }

“The men the American people admire most extravagantly are the most daring liars; the men they detest most violently are those who try to tell them the truth.”

- H. L. Mencken

“A lie can run around the world six times while the truth is still trying to put on its pants.”

- Mark Twain (after James Watt)

***

Please keep up the good work on this endlessly thankless task.

6 stefn { 02.12.13 at 12:56 pm }

Great research and writing per usual.

7 tundraboy { 02.12.13 at 10:21 pm }

“I know you asked first and I promised it to you. But a fellow Korean asked me yesterday so I had to give it to him instead.” Doesn’t surprise me one bit that these so-called journalists would write a complete suck-up job for Samsung.

8 The Mad Hatter { 02.13.13 at 3:56 am }

@NormM

They’ve just had the lesson of helping Samsung become a major competitor by getting their most competent supplier to make too much stuff for them.

Actually not. Ever hear of the Common Platform Manufacturing Alliance? No? Better read about it, fast, because this is why everyone else’s chips are improving.

Intel faces serious problems, including a dying market. It is possible that in ten to fifteen years they’ll be just another contract fab, with no chip designs of their own.

Wayne

9 kent { 02.13.13 at 6:58 am }

Daniel,

You are almost a ghost. You come and go in a flash these days. Still, you seem to appear most when times are harder for Apple, and the forces on the dark side are on the march, creating fictions that Wall Street uses to bloody Apple. There was a time when Apple was the underdog, so the attacks were not as vicious. But now Apple has attained dominant status and many dogs have been unleashed to take it down. A pack of rabid, blogger coyotes using their numbers to try to dent Apple’s hide and drag it down. You, as always, are the only one that is armed with memory and truth and understanding. Amazing hat so few actually understand this relatively simple company. But that is the case. So thank you for beating back the wild dogs and defending the most amazing example of capitalistic excellence that exists in America today. Keep up the great work.

10 stefn { 02.17.13 at 12:01 pm }

Me too: Thanks for your great, thankless work. I hear rumblings that Samsung will offer a phone this year with its own Tizen OS. Inevitable: Samsung wants to be Apple, not Sony. Can Samsung search be far behind? Can you say gobble google three times fast?

11 macs4newbies { 02.19.13 at 4:35 pm }

It seems to me that if Apple want’s to seriously degrade Samsung’s ability to rip off Apple’s iOS technologies, it must start by Apple terminating the supplier relationship with Samsung. It would appear that Apple has numerous options in this regard, most of which don’t involve companies that pirate Apple technolgy in their efforts to make inferior knockoff products.

12 kdaeseok { 02.25.13 at 7:45 pm }

Galaxy S4 to come out next month! Can’t wait.

13 mhikl { 03.27.13 at 10:17 pm }

Great stuff, Daniel. Wish I had found your work earlier. Better late than never. You make traversing the bullshit so easy; once one’s olfactory sensors have been purged of Google’s & FacsimileSam’s Flawgic. Where others fear to tread the path of truth, you charge ahead like a bull in a china shop full of terrified fat ladies in feathered hats with journalist credentials glued to their asses, lined up like pins at a bowling alley for takedown.

14 mhikl { 04.17.13 at 2:18 pm }

Danny Boy, you constantly amaze me. Criticism from certain quarters means squat against clear thinking. I suppose you could be a little more couchy in your writing but then that would make you boring and ‘one of the boys’. Grabbing the opposition by the short and curlies is much more fun. You are always ahead of the game played by others, DED. Are you sure Dilger is not short for Dillinger. At least you share some similarities: ‘Samsung’ & BS enemy number one.

15 mhikl { 04.17.13 at 2:45 pm }

“Flying pigs”. You owe me a laundry bill, bud.

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