Sony’s Challenges and the Future of Samsung

More news from Sony today as they look to spin off more groups from the company as wholly owned subsidiaries. Sony’s tough times are rooted in a basic fundamental point — they have not dominated a product segment with deep customer emotional attachment for some time. Sony is, in a way, a classic case study in disruption. They were a premium player in a market where good enough was simply good enough. Thus, they were undercut in high growth markets by companies who could offer similar specs at lower costs. Sony’s new strategy is to continue to play the premium tier and focus on higher margins but lower shipments. This is not a bad strategy on paper, so long as they have the a sustainable competitive advantage allowing them to offer higher prices. This should be the sole focus of these subsidiaries as the goal in this restructure is to focus on profits.

Sony is also reportedly backing off their smartphone efforts which, given the Android race to the bottom, makes complete sense. Sony is smart to focus on the things that are making them money. Their imaging group, both cameras and image sensors, are among their most profitable groups. And the Playstation 4 remains the leader in sales of game consoles. Sony is clearly in transition and the Sony we once knew is likely to transform into an entirely different company over the next few years as they focus their efforts. Sony is still an innovative company. However, it may be their future is in empowering others to commercialize their innovations rather than their own product brands.

All of this makes me wonder if Sony’s struggles foreshadow a fate for Samsung. Many of the same fundamental issues surrounding Sony also surround Samsung. Their branded products are facing rapid commoditization. Samsung has been able to fend off issues that hit Sony thanks to a massive marketing budget. They are mostly out of selling PCs for similar reasons as Sony. Their mobile unit continues to see steep declines as competing with smartphones with similar specs and lower prices becomes extremely difficult. Their TV business remains a top seller but you have to wonder how long that can last, particularly if the Chinese enter the US market with good quality 4k and then 8k, and then 4k and 8k OLED TVs at extremely low cost. One thing I have thought about is, how smart it would be for Xiaomi to first enter the US market with their low-cost 4k TVs? It’s a good way to disrupt and build a brand. I expect other Chinese brands to do this very soon as well, likely under different brands which US consumers know.

Similarly to Sony, Samsung’s component businesses seem to be doing the best. Their chipset manufacturing capabilities remain among the leading ARM fabs. Their display and memory businesses are similarly strong. One has to wonder how much of Samsung’s future, like Sony’s, may be in components with brands other than their own to commercialize.

While Samsung is in a different situation financially, thanks to the backing of their nation state, I can see some similarities to what is happening to Sony that could happen to Samsung should they not engage in some different courses of action.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

7 thoughts on “Sony’s Challenges and the Future of Samsung”

  1. For Samsung you also have an extremely loyal local market. Sony probably sold a lot in Japan, but never had the huge market share in Japan that Samsung had and still has in Korea. Even in the US Samsung has a lot of appliances and other items that were never a big business for Sony.

  2. As you say, this is a classical case of disruption, and you can’t really blame Sony for not having “deep customer emotional attachment”. They did the very best that any consumer electronics company other than Apple has done.

    I too agree that Sony and Samsung should be able to profit for longer in components, which is also in line with Christensen’s idea of “conservation of attractive profits”.

    In fact, I think that Samsung will fare worse than Sony in the long run. This is because they are technologically more similar to the Chinese. Sony has a long history in optics and analog electronics. That is why they are very strong in the super high-end video and audio equipment markets, and probably why high-end smartphone makers will continue to use their parts. I am not sure that Samsung has a similar stronghold that will be resistant to the onslaught of the Chinese.

  3. First, I’m puzzled by “While Samsung is in a different situation financially, thanks to the backing of their nation state”. Sure, SK is lenient towards chaebols, but the US are extremely big-corp friendly too (Obama did veto a court ruling unfavorable to Apple, IP law is constantly being revised to favor incumbents), so that comment would need some serious looking into for validation.

    As for drawing a parallel between Samsung and Sony, I’m not sure how similar the two are. I see Sony as having gone from high-end pro gear towards consumer gear, while Samsung went from low-end consumer to high-end consumer ? Also in my experience, Sony/consumer had serious quality problems (I still have to come across a Sony PC that hasn’t needed service) and bad service. Samsung’s service is not quite as bad, and the issues are rarer. For me personally, my first 2 Sony devices failed and needed several trips to a service center, and one finally got swapped for a Toshiba by the retailer; none of my Samsung devices has ever failed unduly early.

    Both do seem to have erred towards content, Sony with movies/music, Samsung with apps. But Samsung makes all the parts required for a smartphone, while Sony only made cameras, and a while ago, screens. And Sony never achieved scale in IT markets.

    1. I wrote a while back about how the government assures Samsung has essentially an endless bank account. Much more so than anything we see at this country for tech. Culturally the company is also very important to the country, hence the favor and willingness to help in every capacity.

      1. Still, financial facilities for a company that’s making billions anyway nowadays is probably no longer *that* important, especially compared to an US IP system that’s closing down whole avenues for innovation and locking out competitors, especially in the software area.
        There are several ways to protect/favor companies, the most visible ones are not the the most extreme/efficient.

  4. First I would like to see HTC and Sony working together on phones. The second thing is Samsung is stubborn but they hate losing money and their problems aren’t new, touchwiz has upset people for a long time because it’s ugly and it slows the phone down, and the build quality for a top of the line phone is sub par. The last note phone made everybody go wild because for the first time they added metal to their design and used a plastic back cover that felt good to the hand. Competition is good because it seems like companies don’t innovate very well when things are easy. So I hope Google and the OEM’s start putting out better than iPhone quality hardware and software.

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