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Samsung Q4-2012 Results- A Supply Chain Matters Perspective

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Supply Chain Matters provides somewhat of a contrast to our commentary related to Apple’s latest December ending quarterly results.  Arch rival Samsung has also reported quarterly results and the highlights are impressive, along with the business implications.

Samsung’s fourth quarter profits, a record high, surged 76 percent from the year-ago period while revenues increased 18.5 percent.  The maker’s cellphone and telecoms business was reported as accounting for 62 percent of operating profit in the quarter, but product margins for cellphones declined 1.4 percent to 17.4 percent.  Samsung also reported a healthy jump in profits within its semiconductor division, while the liquid crystal display (LCD) improved its margins by producing more organic light emitting diode (OLED) displays.

While Samsung does not publically disclose output volumes, equity analysts and business media estimate that Samsung sold upwards of 60 million smartphones, and 100 million cellphones during the recent quarter.  Contrast that number with the roughly 48 million iPhones sold by Apple. Some equity analysts and market watchers have now noted that Samsung ‘s overall growth momentum in smartphones is becoming faster than that of Apple.

Todays’ printed edition of The Wall Street Journal features an article with the title, Has Apple Lost Its Cool to Samsung? (paid subscription required or free metered view). That article notes the following: “The deep-pocketed Korean company has used a combination of engineering prowess, manufacturing heft and marketing savvy to create smartphones that can rival the iPhone in both sales and appeal.” As our readers may all be aware, Samsung ‘s other component businesses are primary suppliers to the cellphones group, including processor chips and LCD displays, all of which adds more impressiveness to the performance of Samsung’s supply chain. That strategy was also cited in today’s WSJ article as providing a discernible cost advantage as well as flexibilities in product design features and time-to-market. Supply Chain Matters has previously noted that Samsung of late has been purposely introducing its newer models of smartphones ahead of Apple’s announcements, practicing first-mover advantage. While the company has not garnered all of the massive media attention of Apple, it has been adroit in establishing its own global brand image for features, function, as well as product availability.

As a community, we have placed many accolades on the capabilities of Apple’s supply chain teams.  It is perhaps time that due recognition is placed on Samsung’s teams as well.  Apple has been able to garner such recognition primarily because it outsources a vast majority of component and finished goods production, some of which is serviced by Samsung.  Apple’s current margins of 38-45 percent provide more investment flexibility than those of the high teens of Samsung, as well as a cushion to hide product execution missteps. Make no mistake, there are clearer signs that that future competitive battle in the smartphone segment will be predicated on price, and that could play to Samsung’s advantage.

Whether or not Gartner again anoints Apple as number one of the Top 25 Supply Chains for 2013, primarily because of its superior Return on Assets (ROA), Supply Chain Matters is of the view that Samsung had better be a close second, if not number one itself.  The sheer volume and scale of operational execution, the consistency of performance and the contribution to business outcomes is impresTip of the Hatsive and warrants global recognition.

Samsung provides a vibrant example of why Supply Chain Matters, and deserves our Tip of the Hat designation.

 

 

Bob Ferrari

 

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