Unpacked for Friday November 18, 2016

Samsung’s Acquisitions Point to Increase Desire to Independence by Carolina Milanesi

This week was a pretty busy one for Samsung’s M&A team. On Monday, Samsung announced it would acquire Harman International for $8 billion. Later on Wednesday, Samsung announced it was acquiring NewNet CommunicationTechnologies (Canada) Inc.

In very different ways, both acquisitions point to a Samsung that wants to gain more and more independence from Google services in an attempt to strengthen its own ecosystem. This is not just driven by a need to differentiate from other Android makers but from a need to be prepared in case remaining on Android will no longer be an option.

Most coverage of the Harman acquisition focused on the car business for obvious reasons. For what it is worth, I think it is smart of Samsung to focus on the component side and position itself as a partner to the many car manufacturers rather than trying to build its own car. I am sure in South Korea alone, Samsung would find very interested partners in Hyundai and Kia. The other positive part of this acquisition is that components will end up in cars long before a finished product would get to the market, representing a much better short term opportunity for Samsung. Diversifying the client base for the component business is key as sales of smartphones slow.

The part of the acquisition less discussed has to do with the fact Harman International owns Harman/Kardon and JBL. There is an opportunity for Samsung to integrate any new/superior sound technology in their devices – Huawei had just announced at IFA their tablet MediaPad M3 featured Harman/Kardon audio. There is also an opportunity with JBL to go after the smart speaker business, especially considering the other recent acquisition of Viv. Samsung has played with S Voice before with little success but it is clear digital assistants will play a big role in the future and, although I am sceptical Samsung could pull off an experience as strong as Google, Apple, Amazon, and Microsoft can, I do believe there is a lot of opportunity for a voice-first UI to benefit Samsung’s products.

The acquisition of NewNet CommunicationTechnologies (Canada) Inc. is less flashy but a very interesting acquisition that could benefit both Samsung’s consumers and enterprise play. NewNet specializes in RCS infrastructure and services which enable things like high quality voice calls, group calls, video calls, file sharing and more. Of course, the first thought is this is an investment to acquire the capabilities of building a response to Apple iMessage and Google Allo. However, this could also help Samsung in their move into enterprise as it could give them the opportunity to build a secure Slack competitor.

The success on the consumer side will mainly depend on two key points: How engaging and differentiated the experience is going to be and how paranoid consumers are about using Google Allo. It will also be interesting to see if Samsung will create an app that will be Android-compatible vs limiting it to Samsung-only products.

On the enterprise side, I think there is a clear opportunity as Microsoft expressed in a lot of detail a few weeks ago when it launched Microsoft Teams. The solution, however, seemed more catered to very large enterprise possibly leaving small enterprise to look for something else. For many, that something else today is Slack, a success of BYOA to work especially among millennials. As Samsung is pushing its enterprise effort well beyond MDM into a fuller enterprise platform, this seems to be a perfect addition. We’ll see if they feel the same as the first results of the acquisition start to surface.

Apple’s iPhone Supply Constraints Might Worsen Next Year by Jan Dawson

Bloomberg is reporting Apple is planning to use OLED screens in at least some of next year’s iPhones but suppliers likely won’t be able to manufacture enough displays to outfit all new iPhones with OLED. Samsung appears likely to be the sole supplier and, given it has struggled to make enough screens for its own phones, this is likely to cause issues for Apple too.

We are, of course, still in the early stages of the previous iPhone sales cycle, with the iPhone 7 and 7 Plus having launched within the last couple of months. But it’s already become clear Apple is more supply constrained this year than it was last year and largely because it has moved to two new manufacturing elements which are simultaneously driving up demand and slowing down supply. The new dual cameras in the iPhone 7 Plus and the jet black finish available on some of the new iPhones are both more challenging from a manufacturing perspective and yet, also causing unusually high demand for the larger models. Apple’s comments on its recent earnings call suggest it may take longer to get supply and demand in balance this year than last year.

The shift to OLED would be a comparable one, both potentially driving up demand for new phones while also making them harder to manufacture. Apple has worked very hard over the years to secure an adequate supply of various components and materials for its phones, sometimes buying up most of the global supply for these items. But this becomes much more challenging when the suppliers are also Apple’s competitors, as is the case with Samsung. It simply can’t pay a premium to secure the totality of global supply from a company who also needs to supply its own mobile device arm. These obviously won’t be the first components Apple has bought from Samsung but, in past cases, it’s had other suppliers to use as both a hedge and for leverage. That won’t be the case, at least at first, with OLED displays.

All of this means Apple might simultaneously be in a position to drive yet another massive sales cycle for the iPhone from a demand perspective but may struggle to supply enough devices to meet that demand. One way to solve the problem is to make OLED a feature exclusive to the Plus-sized variant, much as it did this year with the dual cameras. For the last three years, Apple has made some features exclusive to the larger phones and it seems as though it wants to go further down this road, whether driven by supply constraints or by a desire to raise average selling prices and thereby drive faster revenue growth.

In all this, it’s interesting that Tim Cook, who oversaw the supply chain under Steve Jobs and led many of the strategies Apple pursued in the past, is now overseeing this challenging shift to components where that strategy can’t be pursued as easily. For all the criticism of Tim Cook that’s come from some quarters on the basis that he’s not a visionary but an operations guy, this is a big operations issue that Apple really needs to crack. So it seems well suited for his talents. It’ll be interesting to see how Apple resolves some of these challenges in the coming years.

Apple’s Design Book – by Ben Bajarin
On a weekly basis, we are reminded of how many people seem to just misunderstand Apple. You could argue the company itself is a Rorschach Test but so is each and every product. I’m not going to be blind to the reality that there are worthwhile things to criticize Apple for. But, too often, the things people criticize are the wrong areas to commit energy. The “Designed by Apple in California” book is the latest example.

I know folks don’t like, or fully understand this analogy, but Apple in many ways, is similar to a high-end car company. Perhaps Porsche comes to mind but so can Ferrari, Mercedes, etc. These are automotive brands where iconic designs and brands set them apart. Not everyone can afford one, nor does everyone plan to buy one, but their designs are nearly universally appreciated. Pay close attention to any one of these examples (throw in fashion brands or even high-end watch brands) and you will find similar design books sitting on the shelves of designer’s offices. The reason is for inspiration. Anyone who does end product hardware or industrial design will have a range of books, not unlike Apple’s Designed by Apple in California book, and they will lean on these for new inspirations as they are working out a design problem or looking for a new idea.

Subtly, this book is Apple’s attempt to give back to the design community in hopes to share how their ideas have evolved and showing many of the unique ways they have tried to create iconic products and designs. At $300, this product is not targeting everyday folks and it is foolish to think it is. People often forget there is a culture around Apple for some people and they appreciate the brand and identify with the emotional, creative, or other parts of the company. It is not uncommon to see an owner of a Porsche or a Ferrari also have similar printed materials either of books or pictures hanging on their wall because of their self-identificaiton with the product and what it stands for. Apple is very much like this and it is one the strongest things they have going for them — the emotion they bring out in a portion of their base who self-identify with Apple’s culture.

Intel Unveils Broad AI Vision – by Bob O’Donnell

At a special event in San Francisco, Intel debuted a sweeping new vision for the role it believes it can play in the rapidly evolving and highly topical field of Artificial Intelligence. The company put together an impressive set of messages that covered everything from definitions for the still little understood fields of AI, machine learning and deep neural networks, through silicon announcements, software unveilings, new customer partnerships and even a new sub-brand.

The company made clear that it believes the AI market is still in its infancy and that there are plenty of opportunities for it to make a very significant mark. The last point is important, because there’s been a great deal of press and attention to date on the role that GPUs can play in AI and deep learning, driven primarily by nVidia’s strong messaging work.

At Intel’s event, the company discussed a variety of different efforts they’re making to impact the AI market—an opportunity the company clears sees as being strategic to its long-term growth. On the silicon side, the company unveiled a new chip code-named Lake Crest, expected in the first of 2017, which uses the work done by Nervana Systems, the AI company that Intel purchased earlier this year. The new chip architecture is specifically optimized for deep learning algorithms and includes 32 GB of high-bandwidth memory (HBM2) and offers high-speed I/O and proprietary chip-to-chip protocols to handle very large deep neural network models.

Intel plans to use the Nervana sub-brand to help unify all its AI silicon and software efforts. Speaking of which, the company also described a complex set of software offerings that are designed to let data scientists pick from a variety of open source AI frameworks, including the company’s own Neon framework, which came as part of the Nervana acquisition. Essentially, Intel has created some core software that will optimize algorithms created in any of these frameworks to run quickly and effectively on a range of Intel hardware—from x86 CPUs, through Xeon Phi chips to Altera FPGAs and, eventually, to the Lake Crest family of AI chips.

In addition to the products, Intel announced several partnerships with companies such as Google and insurance company USAA to highlight their efforts. They also talked about a number of socially relevant efforts to use AI for good, such as working with cancer researchers and the Center for Missing and Exploited Children.

While the event had a bit of a “drinking from a firehose” burst of information, it’s clear Intel sees a strong opportunity for itself in AI moving forward.