Samsung, the anti-Apple, posts a record operating profit and beats expectations

January 25, 2013
January 25, 2013

Update (7.53pm ET): Samsung has posted fourth-quarter results (pdf), showing an 89% increase in operating profit year-on-year for the quarter and 76% in net profit, ahead of analysts’ estimates. It also said that, contrary to expectations, it won’t cut capital spending this year (though it won’t increase it either, as it has for most of the last eight years.) That contrasts with Apple’s results yesterday, which disappointed the market and caused its stock to plunge.

Original (5.49pm ET) Samsung, which will shortly announce its fourth-quarter earnings (link to webcast), produced some of the first gadgets that could truly challenge Apple’s iPhone and iPad. In 2012, the Korean firm sold 220 million smartphones to Apple’s 133 million. Its market share has steadily grown. And after Apple’s earnings results yesterday, which disappointed analysts for being slightly less stellar than usual, analysts will jump on any news that its biggest competitor is doing either well or poorly.

But the frequent comparisons drawn between the two firms, and their very public courtroom patent battles, belie deep underlying differences. It’s not just that Samsung, founded in 1938, is twice as old as Apple and was founded before the digital revolution was even a glimmer. It’s that Samsung is the “anti-Apple,” a company that scoffs at conceptions of its products as truly “special” and is less focused on the top end of the market than in producing hardware and software at prices that suit all pockets.

Unlike Apple, Samsung sees itself as less inventor than innovator. It builds on technologies already in the marketplace and remains open to others. It makes a broad range of consumer-friendly products rather than a few game-changing ones.

The company’s new, Silicon-Valley-based Chief Strategy Officer Young Sohn readily admitted in a recent interview that he uses Apple products at home, and Samsung products at the office. He complained that he, like other consumers, ran into problems syncing data between all his devices. “If you think about our experiences, it’s device-centric. It’s experienced by itself. It’s not experienced in a connected way. So we think we can provide a lot more things than what we are doing today with an open ecosystem with our partners.”

That philosophy is part of the reason for Samsung’s breadth. Even as it competes with Apple on the smartphone front, Samsung has waged war with Intel over processors for mobile phones and tablets. This year, it became the world’s third-largest integrated chip foundry (which builds custom processors for smartphones). Apple is one of this business’s largest customers, though it would probably like not to be. Cellphones, while a growing part of Samsung’s business, still don’t account for most of its revenues.

And whereas Apple’s phones are too expensive and guzzle too much data for many emerging-market consumers—Apple has only recently been considering a cheaper iPhone, according to various reports—Samsung’s willingness to offer cheaper products has earned it volume in emerging markets. And its marketing tactics, like having its top-end Galaxy SIII available in 100 countries just days after launch, have marginalized many of its competitors. At least in foreign markets, Samsung appears more prepared for the launches of its new products than Apple does, partly because it controls much more of its supply chain.

Indian tech blogger Javed Anwer explains why this has given Samsung the edge over Nokia in India (his whole post is enlightening):

[Samsung] has worked hard on creating the Galaxy brand and even if the low-end or mid-end devices are not that great, it sells truckloads of them because of the halo it has created around the Galaxy. It has spent lots of resources building an efficient distribution network that now matches that of the mighty Nokia, at least in India. It has embraced the geeks, modders and XDA hacks, and they in turn have created business opportunities for it.

If they keep making technology products with quickly contracting margins, both companies will have to be nimble to stay on top. We’re going to bet the way each approaches that task will be completely different. But whereas competition in its market niche is a relatively new thing for Apple, it’s something at which Samsung has had a lot more practice.

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