Samsung's challenge: Build software, platforms to offset hardware sales volatility

Samsung's fourth quarter preliminary sales show the mobile unit may be improving, but the company will need to provide applications with real Internet of things intelligence if it wants to smooth out the feast or famine hardware business.
Written by Larry Dignan, Contributor

Samsung's preliminary fourth quarter results highlight a mobile unit that may be on the mend as other growth drivers pick up the slack. In the future, Samsung may be a key Internet of things player, but the company's conundrum is the same as it ever was: It has to improve its software game.

The consumer electronics giant projected fourth quarter sales between 51 trillion and 53 trillion Korean won with an operating profit of 5 trillion to 5.4 trillion Korean won. BMO analyst Tim Long said sales were in line with expectations with operating profits a bit above.

Long said in a research note that BMO is projecting 101 million handset shipments in the fourth quarter with smartphones being 80 percent of shipments. Samsung is being squeezed by Chinese vendors on price as well as Apple's iPhone 6 and iPhone 6 Plus. Analysts expect the Galaxy S6 and Galaxy Note 5 to at least stop the slide if not reverse it.

That smartphone tough sledding has been known for a while, but Samsung also makes a bit of everything from memory to screens to TVs to home appliances. Samsung also has an emerging enterprise unit which has made Android more secure and become a dark horse mobility management play.

The game for Samsung today is the same as it has been forever---sell more hardware. The enterprise unit for Samsung is largely about selling tablets and smartphones into companies, which generally think of the Galaxy line as the default Android device option. However, the win for enterprises is any integration and software Samsung can bring to the table.

Ed Abrams, vice president of marketing for the Samsung STA Enterprise Business Unit, told Rachel King at CES 2015:

When we look at B2B, we're uniquely positioned to take everything from the front-end experience on the device, whether it be a laptop or wearable, back through the applications, the service and support, and the solutions to bring all of that information together for customers in a way that allows them to access and activate it.

And there's the lesson the rest of Samsung needs to learn. The glue that will drive Samsung's results in the future will be based on software. For instance, Samsung's Boo-Keun Yoon, president and CEO of Samsung Electronics, said that the Internet of things (IoT) will drive everything for the company. "It's not science fiction anymore. It's science fact," Yoon insisted. By 2017, 90 percent of all Samsung products will be IoT devices. Also see: CES 2015: The Big Trends for Business

Samsung's Boo-Keun Yoon, president and CEO of Samsung Electronics, is betting on IoT.

Yoon did note that Samsung has to show consumers and businesses the advantages of IoT.

And there's the catch. Samsung needs to be a platform. If Samsung doesn't become a software player that can take all that data from devices and provide real intelligence then it will forever be stuck in the hardware world of declining margins and commoditization. Samsung won't be the only company with most of its products connected to the Internet. Those connections are the easy part. Then what?

To date, Samsung has been focused on overlays to Android, value added apps, Smart TV interfaces, OS diversions such as Tizen with the occasional well-received venture into device security and management. Samsung's software history is a bit spotty. The reality is that those front-end efforts are really just an appetizer. The real will be giving me real actionable data from everything from my refrigerator to my TV to my phone to hospital stay and work and home personas.

It's a bit above my pay grade to figure out how exactly that intelligence will be delivered. But as noted by ZDNet Korea, Samsung is on the case via this CNET translated version:

Yoon said he believed that IoT "was already here," and that consumers will feel the "unimaginable changes" within two to three years. Yoon also said there was a decision-making body within Samsung on IoT strategy, with members that include JK Shin, co-CEO and head of the mobile division of Samsung.

How that IoT strategy emerges will go a long way to making sure that investors aren't worrying about feast or famine smartphone sales years from now.

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