Samsung girds for life after Apple

1 of 3 Premium Clicks used this month

Buy This Photo

ian waldie/bloomberg A man uses a Samsung Electronics Co. Galaxy S III smartphone to record a video outside the Apple Inc. store on George Street in Sydney, Australia, last September. The end may be nigh in the relationship between Samsung and Apple.

"; aryZooms[imgCounter] = "javascript: NewWindow(870,625,window.document.location+'&Template=photos&img="+imgCounter+"')"; var ap = /AP/.test(""); var associated = /Associated/i.test(""); var contributed = /Contributed/i.test(""); var courtesy = /courtesy/i.test(""); if (ap==true || associated==true || contributed==true || courtesy==true || ""==""){ document.getElementById('purchasePhoto').style.display = "none"; } bolImages=true; "; document.getElementById('premiumMsg').innerHTML = contentStr; document.getElementById('premiumMsg').style.display = "block"; } else if (userSingleSale == "Reguser") { contentStr = "" + userStoriesViewed + " of 10 clicks used this month
UPGRADE your account for full access to SouthCoastToday.com"; document.getElementById('premiumMsg').innerHTML = contentStr; document.getElementById('premiumMsg').style.display = "block"; } else if (userSingleSale == "PREMIUM01") { document.getElementById('premiumMsg').style.display = "none"; }

By JUN YANG, ANAND KRISHNAMOORTHY AND JUNGAH LEE

February 24, 2013 12:00 AM

"; aryZooms[imgCounter] = "javascript: NewWindow(870,625,window.document.location+'&Template=photos&img="+imgCounter+"')";

SEOUL, South Korea ? Samsung Electronics' reclusive chairman has long warned employees against complacency and obsolescence.

"Change everything except your wife and kids," Lee Kun-hee told them in 1993, charting a course that would turn a $2 billion maker of cheap TVs into the $200 billion giant it is today. Two decades on, his message remains the same: "Forget about the past and start anew," Lee exhorted employees in his New Year's address on Jan. 2. "We must search out new businesses that Samsung's survival depends on."

That commitment to disruption has served Lee well. Samsung's pioneering of flat-screen TVs crippled Tokyo-based Sony and Sharp. Its relentless focus on chips helped bankrupt Elpida Memory Inc. Nokia's 14-year dominance in phones fell last year. With Samsung now preparing to shed Apple as a customer as their rivalry intensifies, the Korean company's smartphones are already outselling the iPhone and its share of the market for tablet computers has doubled in a year.

The Cupertino, Calif.-based maker of iPhones and iPads is already taking steps to distance itself from Samsung, according to a person familiar with Apple's thinking, who declined to be identified because of the sensitivity of the subject matter. Rivalry in smartphones and tablets, and lawsuits in which both insist the other is stealing ideas, are undermining the relationship, the person said.

Samsung has zoomed past Apple in the smartphone market that the U.S. company pioneered. Samsung's market share rose to 30.4 percent last year from 19.9 percent, while Apple's remained at about 19 percent, according to Strategy Analytics.

In tablet computers, the market Apple created with the iPad, Samsung doubled its market share in the fourth quarter, to 15 percent from 7.3 percent a year earlier, according to IDC. Apple's lead dipped to 44 percent from 52 percent.

Apple's purchases of chips, screens and other components now account for about 3 percent of Samsung's earnings per share, roughly half the level at the beginning of last year, said Marc C. Newman, whose team of Sanford C. Bernstein analysts published a 211-page study of the Korean company in September.

While Samsung is searching out new customers, Apple has expanded its list of suppliers, according to a statement from Apple as well as so-called tear-down reports in which analysts take gadgets apart to identify parts. Samsung's reliance on Google's Android operating system and more recent adoption of Microsoft's wireless software also strengthens its ties with Apple's two biggest U.S. rivals.

"Samsung is trying to get ready for a possible breakup with Apple," said Lee Jin-woo, who holds the South Korean company's stock in the $6.6 billion he helps oversee as a senior fund manager at KTB Asset Management in Seoul. "Samsung will make another big push into tablets, its multiple products driving sales of components and making up for any losses from Apple."

The struggle between the two will gauge not just their ability to reap the biggest gains from more than $400 billion in global sales of handheld wireless devices, it also tests two contrasting business models.

Where Apple is defined by a handful of products, Samsung sprawls across industries; where Apple outsources its manufacturing, Samsung's mastery of industrial processes is its biggest strength; where Apple seeks markets for its designs, Samsung designs for the market.

Disentangling from the relationship with Samsung will take time, said Newman, a senior analyst at Sanford in Hong Kong.

Apple needs Samsung's processors to avoid shortages of iPhone and iPads. Alternative suppliers such as Taiwan Semiconductor Manufacturing Co. aren't able to meet demand and Samsung is withholding investment in new capacity.

"It may take a few more years before they're entirely separated from Samsung because it's a severe lock-in, extremely complicated," Newman said. "Samsung is a phenomenal manufacturer and even TSMC, which is also a phenomenal manufacturer, is going to have a lot of trouble to ramp up."

Innolux and AU Optronics, Taiwan's largest makers of liquid-crystal displays, were named among the iPhone maker's suppliers last month, according to an Apple statement.

Samsung's processor sales will continue to rise along with Apple's revenue this year at least, and in the meantime the Korean company is supplying more parts for its own phones and tablets as well as finding new customers, Newman said.

"Samsung makes the best-quality parts, and if Apple rules out Samsung, they have to make a compromise," said Baik Jae-yer, a fund manager at Korea Investment Trust, which holds a 2.7 percent stake in Samsung.

Jason Kim, a Samsung spokesman, declined to discuss any changes in the relationship with Apple.

Weaning Samsung away from its relationship with Apple is a task that will increasingly fall to Lee Jae-yong, the 44-year- old grandson of the company's founder. Lee, also known as J.Y. Lee, was named vice chairman in December, the clearest signal yet on the succession for his 71-year-old father. Educated at Seoul National University, Keio University in Japan and Harvard Business School, he has helped run the components business, which provides parts for Sony, Hewlett-Packard, Amazon.com, Google and Dell, as well as Apple.

The younger Lee "has worked hard over the past 10 years and can have actual influence now," said Lim Hyung-kyu, who ran Samsung's chips, research and new business divisions in a 33- year career beginning in 1976 and remains an adviser to the company. In any event, Samsung has grown to the point it's no longer reliant on any one person: "There's no one giving orders in Samsung. Even the chairman doesn't give orders ? just broad guidelines."

Full-year net income may reach 30 trillion won ($27.4 billion) this year, according to the average estimate of 44 analysts surveyed by Bloomberg. That's a 142-fold increase from 1993, and would make Samsung the world's sixth-most profitable company, data compiled by Bloomberg show.

Samsung last month reported net income for the fourth quarter jumped 76 percent, more than analysts had forecast. The company's shares fell 6 percent in the following two days after it said smartphone sales may slow as developed countries are saturated and cheaper Chinese manufacturers crowd out the bottom of the market.

The phone division now accounts for almost 70 percent of Samsung's operating profit. The company is also pushing forward on parts. On Jan. 10, it unveiled a new, faster processor ? chips that make other components work together. Samsung is focusing on integrated processors, memory chips and display screens to capture more of a smartphone and tablet market forecast to reach $416 billion this year.

"The only company that has logic, memory and display is Samsung," Woo Nam-sung, head of System LSI, the division making the Apple processors, said at the International Consumer Electronics Show in Las Vegas last month.

The company also said it was targeting a 50 percent jump in sales of home appliances such as fridges and washing machines over three years. Samsung's 43 percent hold over the global market for DRAM (dynamic random access memory) memory chips may also cease to be a drag as prices rebound this year, Sanford C. Bernstein said. A gauge of DRAM chip prices has jumped 24 percent this year.

"We love Samsung," said Olaf Rogge, London-based chief executive officer at Rogge Global Partners, which manages about $50 billion in bonds. They're "very well diversified. It's not Apple. Remember, one day, a company like Apple will go ex-growth. One day, everybody has this iPhone 4 or 5."

That day may be arriving. As Samsung's fortunes waxed, Apple's have waned.

Even though 51 out of 64 analysts recommend buying Apple's stock, with full-year earnings forecast to hit $46 billion, the most for any company, investors have dumped the shares. Since peaking in September, about $240 billion has been wiped from Apple's market value as it failed to keep pace with customer demand and on increased competition from rival operating systems ? particularly Google's Android.

Unlike Apple, Samsung isn't locked into any system ? including its own. That gives the Korean company insurance against missteps by Google and time to keep working at its own software designs.

"If they can be better at making software, of course, it'd be great, but it's like expecting one company to be able to control everything," said Baik. "Samsung relies on Google a lot now, but they can also build a relationship with Microsoft."

Google and Microsoft are also among companies entering the top end of the smart-device market, while faster growth in the middle of the range, where Apple hasn't been competing, has eroded its share.

A cheaper iPhone may be added to the iPad Mini Apple brought out last year, a person familiar with the plans told Bloomberg News last month. Apple CEO Tim Cook already reversed a vow by late founder Steve Jobs that the company wouldn't introduce a scaled-back and cut-price version of the iPad. By positioning the company at the peak of design, quality and price, Apple may have limited options to expand.

"We can only do a few things great," Cook said in an interview in December. "That's a part of our base principle: that we will only do a few things. And we'll only do things where we can make a significant contribution."

Samsung didn't seem so well-placed when the elder Lee inherited the family business in 1987. The company was four years into a gamble by his father and Samsung founder Lee Byung-chul to develop DRAM. The U.S. pioneers of the industry had just been overwhelmed with relentless investment in plant and technology by Hitachi Ltd., Toshiba Corp. and NEC Corp.

Lee was "betting the company's future," recalled Lim. "It was Monday, Tuesday, Wednesday, Thursday, Friday-Friday- Friday," he said. "We worked seven days a week, 14 hours a day."

Not only did Samsung survive, it became the biggest DRAM maker in less than 10 years and developed a taste for market domination: "We wanted to be number one in all our businesses," Lim said.

TVs were next: three-and-a-half decades after shipping its first black and white sets to Panama, Samsung passed Sony in 2005, and was growling at the heels of Helsinki-based Nokia in telephones.

And then came the iPhone. Apple's 2007 foray into smartphones made the once near-bankrupt maker of desktop and laptop computers an overnight threat in several new markets.

BlackBerry shares have slumped more than 80 percent as bankers ditched their once-totemic handsets; gamers shunned consoles, sending Super Mario creator Nintendo to a first annual loss last year; and demand for Microsoft's software was crushed in the stampede for Apple's integrated, connected and portable devices.

While Apple's phone was a boon for Samsung's components business, the device was a disaster for the company's mobile phones. Within two years, Apple was selling four times as many smartphones as Samsung.

The gulf between the iPhone and latest Samsung was a "crisis of design," managers at the Korean company's mobile division wrote in a February 2010 internal memo used by Apple at last year's trial. "Do you know how difficult the Omnia is to use?" the memo said. "It's better to not make anything at all than to make it in a laughable way."

Just four months later, Samsung released a new smartphone that a California jury in August last year ruled was too much like the iPhone, landing a $1 billion fine and possible import ban for infringing Apple patents. The companies returned to court Dec. 6: Apple seeking to broaden the judgment to cover more models; Samsung to have the case thrown out.

"What we would like, in a perfect world, is for everyone to invent their own stuff," Cook said in the interview.

Samsung Electronics has struggled to shake off the copycat tag that has dogged it since its foundation in 1969, when engineers ripped apart Sony TVs to learn how they were made. And while Samsung made the world's first MP3 phone in 1999, and followed that a year later with the first camera handset, it has remained an innovator of gadgets and industrial processes.

"They aren't the kind of company that makes products no one else can mimic," said Lim, the veteran. "Samsung has been making small, incremental improvements, but haven't been as successful with radical, big changes. But they're getting close."

About six miles from Apple's 1 Infinite Loop home, and a five-minute stroll from Google's sprawling campus in Mountain View, Samsung is building a 385,000-square foot (36,000-square meter) complex. When finished, it will house engineers to design mobile software, the company announced Sept. 19.

"We've seen their investment in software really spike," said Amit Pandey, CEO of Redwood City-based Zenprise Inc., which designs software to manage employees' mobile devices and works with Samsung.

Luring the best talent away from freewheeling West Coast startups or market leaders like Google may prove tricky in an industry where demand for skilled workers allows the picky to be pickier still.

"Mobile is super-hot. It's very easy to find work,'" said Leah Culver, a San Francisco-based software developer for Apple's iOS operating system and Android, used by Samsung. "I'd care more about what particular product I am working on."

Samsung represents a stepping stone on a career path, said Dave Howell, CEO of Avatron Software in Portland, Oregon. "I don't think of working for Samsung as a lifestyle, I think of it as a job," he said. "People go to Apple to retire."

That's not how it is back in South Korea, where the company is the most sought-after employer, according to a survey last year by SaraminHR, an online job-site operator.

About an hour's drive southeast of Seoul is Samsung's headquarters at Suwon, once a sprawling industrial complex churning out TVs and other household appliances. Factories have made way for pizzerias and ice-cream parlors, basketball courts and soccer pitches.

A 30-story center under construction will house 10,000 people working on networks and telecommunications, one of five new R&D units to open by 2015 at a cost of more than $3.6 billion. An industrial complex for new businesses ? part of a $20 billion search for the next drivers of growth ? will open in three years, and employ about 30,000 people. Samsung plows about 6 percent of revenue back into R&D, more than three times the rate at Apple, according to data compiled by Bloomberg.

Globally, Samsung has more than 55,000 engineers and other researchers ? about a quarter of its workforce ? looking at robotics and semiconductors, or seeking new applications for advanced materials that may yield game-changing advances from batteries to medical scanners and displays. Apple's total headcount was 72,800, according to its latest annual report.

The South Korean company was granted 5,081 patents in the U.S. last year, the most after IBM Corp., a Jan. 10 report by IFI Claims Patent Services shows.

"Samsung in its back pocket has got an increasingly relevant portfolio of patents," Vlad Cara, a London-based analyst at Pacific Investment Management Co., said by email.

As their legal fight spills across the globe, some decisions are going against Apple: a Dutch court Jan. 16 ruled Samsung's Galaxy Tab products didn't infringe Apple's design rights. Apple last month lost a U.S. appeal to block sales of Samsung devices pending the result of its patent-infringement case. The U.S. company itself is fighting suits from Samsung, as well as other phone and software providers.

"Everybody's talking about the patent war," said Pruksa Iamthongthong, who holds Samsung preference shares at Aberdeen Asset Management in Singapore. "It's a game all these players are playing, and it'll continue to be there," she said. "It'll just speed up the product life cycle."

The aggressive legal tactics of Apple, Samsung and other technology companies reflect the need to monetize intellectual property before the erosive effects of emulation. History is littered with examples of innovators who failed to keep hold of their first-mover advantage, according to Anil Gupta and Haiyan Wang, authors of "The Quest for Global Dominance."

While the Altair computer is regarded as the spark behind the personal computer industry, Jobs and fellow Apple founder Steve Wozniak took over the market just two years later when they began producing the first Macintosh PCs, the authors noted in a March article on the website of Paris-based Insead business school. By the early 1980s, IBM was the dominant player in an industry crowded with rivals that drove Apple close to failure by 1997.

Apple was "lucky enough to seize the moment of change successfully," said C.W. Chung, a Seoul-based analyst at Nomura Holdings Inc. in Seoul. As for Samsung: "They haven't run their course, and they're still evolving."

One of J.Y. Lee's biggest challenges will be picking those businesses he wants to remain in. His father's success coincided with the decline of Japan Inc. Japanese chipmakers failed to react as Samsung began to outspend them, turning a $1 billion capital expenditure gap with nearest rival Hitachi in 2004 into a $15 billion chasm last year.

The scale of investment Samsung needs to stay in front of competition means it risks getting caught on the wrong side of the market. It also means the company has to keep expanding to offset the cost of depreciating fixed assets, said Kota Ezawa, an analyst at Citigroup Inc. in Tokyo.

All the time, hungrier rivals are eyeing Samsung's patch ? and business model.

Huawei Technologies Co., the world's biggest seller of communications networks, is unveiling more phones and tablets. Based in the southern Chinese city of Shenzhen, Huawei was the sixth-biggest phone manufacturer in the world during the quarter ended Sept. 30, according to Bloomberg Industries data.

ZTE Corp., also Shenzhen based, is already the fourth- biggest phone manufacturer. Then there's Lenovo Group Ltd., poised to become the world's biggest computer manufacturer, surpassing Hewlett-Packard Co. Lenovo, the maker of Thinkpad laptops, is bringing out phones, tablets and TVs.

"Long term, they will become a bigger threat," said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages $300 million in assets. "So you have to keep running very fast."

Yang reported from Hong Kong, Krishnamoorthy from Singapore. Contributors: Olga Kharif in Portland, Aaron Ricadela in San Francisco and Ben Richardson in Hong Kong.

We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Rules. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or fill out this form. New comments are only accepted for two weeks from the date of publication.
Not sure how to add your comment? Here's how

1 of 3 Premium Clicks used this month

Buy This Photo

ian waldie/bloomberg A man uses a Samsung Electronics Co. Galaxy S III smartphone to record a video outside the Apple Inc. store on George Street in Sydney, Australia, last September. The end may be nigh in the relationship between Samsung and Apple.

"; aryZooms[imgCounter] = "javascript: NewWindow(870,625,window.document.location+'&Template=photos&img="+imgCounter+"')"; var ap = /AP/.test(""); var associated = /Associated/i.test(""); var contributed = /Contributed/i.test(""); var courtesy = /courtesy/i.test(""); if (ap==true || associated==true || contributed==true || courtesy==true || ""==""){ document.getElementById('purchasePhoto').style.display = "none"; } bolImages=true;

"; document.getElementById('premiumMsg').innerHTML = contentStr; document.getElementById('premiumMsg').style.display = "block"; } else if (userSingleSale == "Reguser") { contentStr = "

" + userStoriesViewed + " of 10 clicks used this month

UPGRADEyour account for full access to SouthCoastToday.com

"; document.getElementById('premiumMsg').innerHTML = contentStr; document.getElementById('premiumMsg').style.display = "block"; } else if (userSingleSale == "PREMIUM01") { document.getElementById('premiumMsg').style.display = "none"; }

By JUN YANG, ANAND KRISHNAMOORTHY AND JUNGAH LEE

February 24, 2013 12:00 AM

"; aryZooms[imgCounter] = "javascript: NewWindow(870,625,window.document.location+'&Template=photos&img="+imgCounter+"')";

SEOUL, South Korea ? Samsung Electronics' reclusive chairman has long warned employees against complacency and obsolescence.

"Change everything except your wife and kids," Lee Kun-hee told them in 1993, charting a course that would turn a $2 billion maker of cheap TVs into the $200 billion giant it is today. Two decades on, his message remains the same: "Forget about the past and start anew," Lee exhorted employees in his New Year's address on Jan. 2. "We must search out new businesses that Samsung's survival depends on."

That commitment to disruption has served Lee well. Samsung's pioneering of flat-screen TVs crippled Tokyo-based Sony and Sharp. Its relentless focus on chips helped bankrupt Elpida Memory Inc. Nokia's 14-year dominance in phones fell last year. With Samsung now preparing to shed Apple as a customer as their rivalry intensifies, the Korean company's smartphones are already outselling the iPhone and its share of the market for tablet computers has doubled in a year.

The Cupertino, Calif.-based maker of iPhones and iPads is already taking steps to distance itself from Samsung, according to a person familiar with Apple's thinking, who declined to be identified because of the sensitivity of the subject matter. Rivalry in smartphones and tablets, and lawsuits in which both insist the other is stealing ideas, are undermining the relationship, the person said.

Samsung has zoomed past Apple in the smartphone market that the U.S. company pioneered. Samsung's market share rose to 30.4 percent last year from 19.9 percent, while Apple's remained at about 19 percent, according to Strategy Analytics.

In tablet computers, the market Apple created with the iPad, Samsung doubled its market share in the fourth quarter, to 15 percent from 7.3 percent a year earlier, according to IDC. Apple's lead dipped to 44 percent from 52 percent.

Apple's purchases of chips, screens and other components now account for about 3 percent of Samsung's earnings per share, roughly half the level at the beginning of last year, said Marc C. Newman, whose team of Sanford C. Bernstein analysts published a 211-page study of the Korean company in September.

While Samsung is searching out new customers, Apple has expanded its list of suppliers, according to a statement from Apple as well as so-called tear-down reports in which analysts take gadgets apart to identify parts. Samsung's reliance on Google's Android operating system and more recent adoption of Microsoft's wireless software also strengthens its ties with Apple's two biggest U.S. rivals.

"Samsung is trying to get ready for a possible breakup with Apple," said Lee Jin-woo, who holds the South Korean company's stock in the $6.6 billion he helps oversee as a senior fund manager at KTB Asset Management in Seoul. "Samsung will make another big push into tablets, its multiple products driving sales of components and making up for any losses from Apple."

The struggle between the two will gauge not just their ability to reap the biggest gains from more than $400 billion in global sales of handheld wireless devices, it also tests two contrasting business models.

Where Apple is defined by a handful of products, Samsung sprawls across industries; where Apple outsources its manufacturing, Samsung's mastery of industrial processes is its biggest strength; where Apple seeks markets for its designs, Samsung designs for the market.

Disentangling from the relationship with Samsung will take time, said Newman, a senior analyst at Sanford in Hong Kong.

Apple needs Samsung's processors to avoid shortages of iPhone and iPads. Alternative suppliers such as Taiwan Semiconductor Manufacturing Co. aren't able to meet demand and Samsung is withholding investment in new capacity.

"It may take a few more years before they're entirely separated from Samsung because it's a severe lock-in, extremely complicated," Newman said. "Samsung is a phenomenal manufacturer and even TSMC, which is also a phenomenal manufacturer, is going to have a lot of trouble to ramp up."

Innolux and AU Optronics, Taiwan's largest makers of liquid-crystal displays, were named among the iPhone maker's suppliers last month, according to an Apple statement.

Samsung's processor sales will continue to rise along with Apple's revenue this year at least, and in the meantime the Korean company is supplying more parts for its own phones and tablets as well as finding new customers, Newman said.

"Samsung makes the best-quality parts, and if Apple rules out Samsung, they have to make a compromise," said Baik Jae-yer, a fund manager at Korea Investment Trust, which holds a 2.7 percent stake in Samsung.

Jason Kim, a Samsung spokesman, declined to discuss any changes in the relationship with Apple.

Weaning Samsung away from its relationship with Apple is a task that will increasingly fall to Lee Jae-yong, the 44-year- old grandson of the company's founder. Lee, also known as J.Y. Lee, was named vice chairman in December, the clearest signal yet on the succession for his 71-year-old father. Educated at Seoul National University, Keio University in Japan and Harvard Business School, he has helped run the components business, which provides parts for Sony, Hewlett-Packard, Amazon.com, Google and Dell, as well as Apple.

The younger Lee "has worked hard over the past 10 years and can have actual influence now," said Lim Hyung-kyu, who ran Samsung's chips, research and new business divisions in a 33- year career beginning in 1976 and remains an adviser to the company. In any event, Samsung has grown to the point it's no longer reliant on any one person: "There's no one giving orders in Samsung. Even the chairman doesn't give orders ? just broad guidelines."

Full-year net income may reach 30 trillion won ($27.4 billion) this year, according to the average estimate of 44 analysts surveyed by Bloomberg. That's a 142-fold increase from 1993, and would make Samsung the world's sixth-most profitable company, data compiled by Bloomberg show.

Samsung last month reported net income for the fourth quarter jumped 76 percent, more than analysts had forecast. The company's shares fell 6 percent in the following two days after it said smartphone sales may slow as developed countries are saturated and cheaper Chinese manufacturers crowd out the bottom of the market.

The phone division now accounts for almost 70 percent of Samsung's operating profit. The company is also pushing forward on parts. On Jan. 10, it unveiled a new, faster processor ? chips that make other components work together. Samsung is focusing on integrated processors, memory chips and display screens to capture more of a smartphone and tablet market forecast to reach $416 billion this year.

"The only company that has logic, memory and display is Samsung," Woo Nam-sung, head of System LSI, the division making the Apple processors, said at the International Consumer Electronics Show in Las Vegas last month.

The company also said it was targeting a 50 percent jump in sales of home appliances such as fridges and washing machines over three years. Samsung's 43 percent hold over the global market for DRAM (dynamic random access memory) memory chips may also cease to be a drag as prices rebound this year, Sanford C. Bernstein said. A gauge of DRAM chip prices has jumped 24 percent this year.

"We love Samsung," said Olaf Rogge, London-based chief executive officer at Rogge Global Partners, which manages about $50 billion in bonds. They're "very well diversified. It's not Apple. Remember, one day, a company like Apple will go ex-growth. One day, everybody has this iPhone 4 or 5."

That day may be arriving. As Samsung's fortunes waxed, Apple's have waned.

Even though 51 out of 64 analysts recommend buying Apple's stock, with full-year earnings forecast to hit $46 billion, the most for any company, investors have dumped the shares. Since peaking in September, about $240 billion has been wiped from Apple's market value as it failed to keep pace with customer demand and on increased competition from rival operating systems ? particularly Google's Android.

Unlike Apple, Samsung isn't locked into any system ? including its own. That gives the Korean company insurance against missteps by Google and time to keep working at its own software designs.

"If they can be better at making software, of course, it'd be great, but it's like expecting one company to be able to control everything," said Baik. "Samsung relies on Google a lot now, but they can also build a relationship with Microsoft."

Google and Microsoft are also among companies entering the top end of the smart-device market, while faster growth in the middle of the range, where Apple hasn't been competing, has eroded its share.

A cheaper iPhone may be added to the iPad Mini Apple brought out last year, a person familiar with the plans told Bloomberg News last month. Apple CEO Tim Cook already reversed a vow by late founder Steve Jobs that the company wouldn't introduce a scaled-back and cut-price version of the iPad. By positioning the company at the peak of design, quality and price, Apple may have limited options to expand.

"We can only do a few things great," Cook said in an interview in December. "That's a part of our base principle: that we will only do a few things. And we'll only do things where we can make a significant contribution."

Samsung didn't seem so well-placed when the elder Lee inherited the family business in 1987. The company was four years into a gamble by his father and Samsung founder Lee Byung-chul to develop DRAM. The U.S. pioneers of the industry had just been overwhelmed with relentless investment in plant and technology by Hitachi Ltd., Toshiba Corp. and NEC Corp.

Lee was "betting the company's future," recalled Lim. "It was Monday, Tuesday, Wednesday, Thursday, Friday-Friday- Friday," he said. "We worked seven days a week, 14 hours a day."

Not only did Samsung survive, it became the biggest DRAM maker in less than 10 years and developed a taste for market domination: "We wanted to be number one in all our businesses," Lim said.

TVs were next: three-and-a-half decades after shipping its first black and white sets to Panama, Samsung passed Sony in 2005, and was growling at the heels of Helsinki-based Nokia in telephones.

And then came the iPhone. Apple's 2007 foray into smartphones made the once near-bankrupt maker of desktop and laptop computers an overnight threat in several new markets.

BlackBerry shares have slumped more than 80 percent as bankers ditched their once-totemic handsets; gamers shunned consoles, sending Super Mario creator Nintendo to a first annual loss last year; and demand for Microsoft's software was crushed in the stampede for Apple's integrated, connected and portable devices.

While Apple's phone was a boon for Samsung's components business, the device was a disaster for the company's mobile phones. Within two years, Apple was selling four times as many smartphones as Samsung.

The gulf between the iPhone and latest Samsung was a "crisis of design," managers at the Korean company's mobile division wrote in a February 2010 internal memo used by Apple at last year's trial. "Do you know how difficult the Omnia is to use?" the memo said. "It's better to not make anything at all than to make it in a laughable way."

Just four months later, Samsung released a new smartphone that a California jury in August last year ruled was too much like the iPhone, landing a $1 billion fine and possible import ban for infringing Apple patents. The companies returned to court Dec. 6: Apple seeking to broaden the judgment to cover more models; Samsung to have the case thrown out.

"What we would like, in a perfect world, is for everyone to invent their own stuff," Cook said in the interview.

Samsung Electronics has struggled to shake off the copycat tag that has dogged it since its foundation in 1969, when engineers ripped apart Sony TVs to learn how they were made. And while Samsung made the world's first MP3 phone in 1999, and followed that a year later with the first camera handset, it has remained an innovator of gadgets and industrial processes.

"They aren't the kind of company that makes products no one else can mimic," said Lim, the veteran. "Samsung has been making small, incremental improvements, but haven't been as successful with radical, big changes. But they're getting close."

About six miles from Apple's 1 Infinite Loop home, and a five-minute stroll from Google's sprawling campus in Mountain View, Samsung is building a 385,000-square foot (36,000-square meter) complex. When finished, it will house engineers to design mobile software, the company announced Sept. 19.

"We've seen their investment in software really spike," said Amit Pandey, CEO of Redwood City-based Zenprise Inc., which designs software to manage employees' mobile devices and works with Samsung.

Luring the best talent away from freewheeling West Coast startups or market leaders like Google may prove tricky in an industry where demand for skilled workers allows the picky to be pickier still.

"Mobile is super-hot. It's very easy to find work,'" said Leah Culver, a San Francisco-based software developer for Apple's iOS operating system and Android, used by Samsung. "I'd care more about what particular product I am working on."

Samsung represents a stepping stone on a career path, said Dave Howell, CEO of Avatron Software in Portland, Oregon. "I don't think of working for Samsung as a lifestyle, I think of it as a job," he said. "People go to Apple to retire."

That's not how it is back in South Korea, where the company is the most sought-after employer, according to a survey last year by SaraminHR, an online job-site operator.

About an hour's drive southeast of Seoul is Samsung's headquarters at Suwon, once a sprawling industrial complex churning out TVs and other household appliances. Factories have made way for pizzerias and ice-cream parlors, basketball courts and soccer pitches.

A 30-story center under construction will house 10,000 people working on networks and telecommunications, one of five new R&D units to open by 2015 at a cost of more than $3.6 billion. An industrial complex for new businesses ? part of a $20 billion search for the next drivers of growth ? will open in three years, and employ about 30,000 people. Samsung plows about 6 percent of revenue back into R&D, more than three times the rate at Apple, according to data compiled by Bloomberg.

Globally, Samsung has more than 55,000 engineers and other researchers ? about a quarter of its workforce ? looking at robotics and semiconductors, or seeking new applications for advanced materials that may yield game-changing advances from batteries to medical scanners and displays. Apple's total headcount was 72,800, according to its latest annual report.

The South Korean company was granted 5,081 patents in the U.S. last year, the most after IBM Corp., a Jan. 10 report by IFI Claims Patent Services shows.

"Samsung in its back pocket has got an increasingly relevant portfolio of patents," Vlad Cara, a London-based analyst at Pacific Investment Management Co., said by email.

As their legal fight spills across the globe, some decisions are going against Apple: a Dutch court Jan. 16 ruled Samsung's Galaxy Tab products didn't infringe Apple's design rights. Apple last month lost a U.S. appeal to block sales of Samsung devices pending the result of its patent-infringement case. The U.S. company itself is fighting suits from Samsung, as well as other phone and software providers.

"Everybody's talking about the patent war," said Pruksa Iamthongthong, who holds Samsung preference shares at Aberdeen Asset Management in Singapore. "It's a game all these players are playing, and it'll continue to be there," she said. "It'll just speed up the product life cycle."

The aggressive legal tactics of Apple, Samsung and other technology companies reflect the need to monetize intellectual property before the erosive effects of emulation. History is littered with examples of innovators who failed to keep hold of their first-mover advantage, according to Anil Gupta and Haiyan Wang, authors of "The Quest for Global Dominance."

While the Altair computer is regarded as the spark behind the personal computer industry, Jobs and fellow Apple founder Steve Wozniak took over the market just two years later when they began producing the first Macintosh PCs, the authors noted in a March article on the website of Paris-based Insead business school. By the early 1980s, IBM was the dominant player in an industry crowded with rivals that drove Apple close to failure by 1997.

Apple was "lucky enough to seize the moment of change successfully," said C.W. Chung, a Seoul-based analyst at Nomura Holdings Inc. in Seoul. As for Samsung: "They haven't run their course, and they're still evolving."

One of J.Y. Lee's biggest challenges will be picking those businesses he wants to remain in. His father's success coincided with the decline of Japan Inc. Japanese chipmakers failed to react as Samsung began to outspend them, turning a $1 billion capital expenditure gap with nearest rival Hitachi in 2004 into a $15 billion chasm last year.

The scale of investment Samsung needs to stay in front of competition means it risks getting caught on the wrong side of the market. It also means the company has to keep expanding to offset the cost of depreciating fixed assets, said Kota Ezawa, an analyst at Citigroup Inc. in Tokyo.

All the time, hungrier rivals are eyeing Samsung's patch ? and business model.

Huawei Technologies Co., the world's biggest seller of communications networks, is unveiling more phones and tablets. Based in the southern Chinese city of Shenzhen, Huawei was the sixth-biggest phone manufacturer in the world during the quarter ended Sept. 30, according to Bloomberg Industries data.

ZTE Corp., also Shenzhen based, is already the fourth- biggest phone manufacturer. Then there's Lenovo Group Ltd., poised to become the world's biggest computer manufacturer, surpassing Hewlett-Packard Co. Lenovo, the maker of Thinkpad laptops, is bringing out phones, tablets and TVs.

"Long term, they will become a bigger threat," said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages $300 million in assets. "So you have to keep running very fast."

Yang reported from Hong Kong, Krishnamoorthy from Singapore. Contributors: Olga Kharif in Portland, Aaron Ricadela in San Francisco and Ben Richardson in Hong Kong.

We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Rules. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or fill out this form. New comments are only accepted for two weeks from the date of publication.
Not sure how to add your comment? Here's how

Source: http://www.southcoasttoday.com/apps/pbcs.dll/article?AID=/20130224/NEWS/302240341/-1/rss02

Las Vegas shooting Jerry Buss Chris Bosh wife josh duhamel josh smith presidents day mindy mccready