October 2014
Mon Tue Wed Thu Fri Sat Sun
« Sep   Nov »
 12345
6789101112
13141516171819
20212223242526
2728293031  

Day October 7, 2014

On the trajectory of successful companies

Samsung Electronics warned Tuesday that its third-quarter earnings would fall below market expectations. It did not cite a decrease in shipments but an increase in marketing expenses coupled with an unfavorable mix (i.e. more low-end units and fewer high-end units).

The headlines reporting the news emphasized the 60% forecast drop in operating income but the company also provided sales figures. Adjusting for exchange rates, the forecast revenues are shown in the following diagram:

 

Screen Shot 2014-10-07 at 8.51.05 AM

Note that I also included Apple’s revenue history and forecast. Samsung’s revenues are shown on the right and Apple’s on the left using the same scale (each horizontal gridline represents $10 billion/quarter.

The explicit cause for the drop is a decline in prices and “increased competition”.[1] However a few more questions need to be answered regarding long-term success in the markets Samsung competes in.

Namely:

  • The absence of a software platform fully within its control
  • The absence of control over an ecosystem of content and apps
  • The absence of services
  • The lack of integration of software, services and hardware
  • The absence of differentiation vis-a-vis other vendors
  • The indefensibility of its low end offerings from low end disruptors
  • The pattern of commoditization in all its markets

Samsung is a very big company but many very big companies came to become small companies. They all followed similar roads.

Notes:
  1. Though one can’t be sure when there was ever decreased competition in its markets. []