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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. []
  • Walt French

    There’s a lot of synergy between Samsung’s units—CPU, memory, displays, more—that means Samsung has some discretion on reallocating revenues and profits.

    This would seem to be a bit of a buffer against sharp surprises in handsets—for as long as the company retains leading shares in those other markets.

    We shouldn’t see the near-total implosion that Nokia underwent.

    But if handsets have been effectively subsidizing those key technologies, or if slowing tech innovations make it easier for other fast followers to become more competitive, it’d seem the eventual blow would be huge.

    • def4

      This was true a few years ago but not so much anymore.
      Exynos hasn’t been able to challenge Qualcomm in performance for a long time and has no presence in the lower end of the market.
      Displays are at the “good enough” level and one can argue they have been at or over that level for two years.
      Semiconductor manufacturing seems to still be a strong point, but that is not a consumer business.

      As a whole, the company will be fine. Samsung was big even before mobile phones (not smartphones) took off.

      • Martin

        The new Exynos processors are quite good. The problem is that since you need to license Qualcomm’s IP for the baseband anyway, Qualcomm has set up the pricing for the SoCs in such a way that it’s cheaper for Samsung to not use their own CPU in many cases.

        But I wonder how much of Samsung’s revenue drop is due to losing most of the A8 production. That ramp would have happened last quarter and Apple would have likely done their usual prepayment for supply. Apple has been on the leading edge of process among all ARM vendors – and foundries make their profits on the better process.

        Displays may be good enough in terms of quality, but they’re ⅔ of a mobile device power budget. Whoever cracks display power consumption will win a lot of markets. Amazon seems to have focused in on that like a laser.

      • Fran_Kostella

        Is it certain that they aren’t doing any A8 chips? I haven’t read anything definitive, but may have just overlooked it. I would have guessed that the loss of the A8 would be big, but looking at the chart, above, the biggest drop over the last four quarters seems to be in “mobile” while “semiconductors” is essentially flat. And that drop seems to be nearly as large as the entire semiconductor revenue.

      • Tatil_S

        You would not see a big drop, because there is not a global overcapacity in fabs at the moment. If you lose Apple’s account, it is relatively easy to get other customers to make up for the shortfall. It may not be as profitable, but the drop would not be precipitous. Besides, the rumors that are *sort of* confirmed by TSMC, points to Samsung getting most of that account back for A9.

      • GlennC777

        Their semiconductor revenue is broken out separately in Didieu’s chart and does not show any drop at all. The drop seems to be entirely in mobile.

      • 程肯

        Those are Q2 numbers. The Q3 detail is not yet released.

      • GlennC777

        Quite right, of course. Apologies for the mis-direction.

        Interesting though that in the historical context, Samsung’s mobile peak was over a year ago and has been trending downward after years of growth with no help from their semiconductor division. Losing at least part of the A8 production can not be helping their current results.

  • Vladimir

    Samsung is not just smartphones although smartphones brought them piles of cash last few years. They were never affraid to jump into the fight as underdogs and they are to big too fail for Korea (heavily subsidized). They cought the mobile wave on time, they cought smartphone wave in the last moment but they didn’t catch the software/platform/ecosystem wave (yet). The thing is that they know what is hurting them and they are probably working hard to correct that as we speak, so I wouldn’t compare them with Nokia and Blackberry (which even had some kind of ecosystem). The proof for that are their desperate tries to stay independent from Google as much as they can. Now, they might not dominate, but they’ll be around for quite some time.

    • def4

      Nokia and Blackberry also worked very hard for many years trying to build software platforms.
      It’s not for lack of trying that they failed.

      • Vladimir

        I wouldn’t compare Nokia/Blackberry to Samsung for many reasons and frankly the lack of software platform is the last one. The company has a history of nothing but catching up and heavy transitions combined with insane ambition of its owners to grow (not just to make profit but to grow and develop waiting for their moment to collect the profit). Also, the whole country of 50+ million people stands behind it and will stand for another 15 years if they need that long to excell again. The competitiveness in Korea is among the top in the world so they will find a way, be sure about that. If they were ever as arogant as Sony, Nokia, Blackberry or Microsoft when Apple showed up with the iPhone we could be worried about them now.
        Presently, their problem is China, not Apple, in both high and low end. Apple can survive there because of its brand which is percieved as luxury, not because of their app ecosystem not because of its services. Just like Louis Vuitton bags. The same happened in Japan (together with crazy subsidies of Softbank and stupidity of Docomo and Sony). So, yes, vanity – definitely my favourite sin! 🙂

      • def4

        You’re just repeating yourself.
        Yes, I know they try very hard. They have been trying hard with software on top of Android, with Bada, with Tizen.
        And yet here we are, with shades of Symbian and Meego.

        I know it’s written on many motivational posters, but it’s not true: effort does not guarrantee favourable outcomes.

      • Vladimir

        I’ve never said that effort guaranties favourable outcomes.
        I am telling you that the software platform is a red herring. They will probably not work hard to make another killer software platform, because they know they are late to that game. They will continue to trow everything at the wall to see what sticks. That’s their strategy in most widest terms, not just smartphone screen size. The software platform is not the only way to go up in the food chain, especially for the still mostly hardware company. So it is not about the motivation and working hard (that is considering), no, it is about their agility to react and to adapt structurally, as a company, which is very different kind of effort. They are not just the arch-enemy of Apple, they are the arch-enemy of everyone who is making a fat profit in something that is close enought to their wide field of opperations.

      • def4

        So you’re saying they’re opportunistic, on top of being hard working. That’s good, but they still need the opportunity.

      • Walt French

        Others may see it differently but I was SHOCKED how unresponsive the company was to the clear warning of The Burning Platform memo. Even well later they rolled out the Pureview 808, with claims that WinPhone *could not* accommodate the special h/w and data flow.

        (It IS true that the ultra-Rez WinPhone reportedly had miserable shot-to-shot lags.)

        And there were other cowboy, un- or more accurately dis-integrated efforts for Unix, Android and attempts to beef up Symbian, an obviously short-term-at-best project that took resources, focus and mindshare away from their supposedly do or die approach.

        So yes, Nokia was especially badly disrupted by iPhone but if Samsung can focus one-tenth as well they should be much better off

      • def4

        Nokia had no clue how to write computer software. Everything was set up for building embedded device software.
        The differences are massive in terms of basic assumptions and trade-offs and apply all the way through a company: management, development, testing, tools.

      • obarthelemy

        The issue is that Windows Phone is extremely specific as to which hardware it supports, and not modifiable at all like Android is (let’s not say “open” ^^); until recently it even imposed a few (as in 2 or 3) screen resolutions, and I think 1 single SoC family. I assume that, performance aside, there was no way to support a fancy camera.
        As for other efforts, I’ve seen from the inside how periods of plenty spawn fiefdoms that, without strong leadership, can duplicate work or work a cross-purposes forever…

    • Walt French

      “Underdogs”?!?

      They had already surpassed Nokia when Burning Platform was written. They had already been a large manufacturer years earlier (my first cellphone, around 2001 IIRC, was a Samsung).

      They did mobilize (heh) quickly in response to iPhone; as it turns out Android might have been tailored for it. But it was done from a position of strength.

      What’s amazing to me is that they had so little awareness of how fragile their edge was at the high end and how quickly the Hordes would pursue them at the low end.

      • Vladimir

        Maybe I am wrong, but I think that when iPhone came out Nokia was still the king of market share and profit share in the cell phone world. But Samsung was on a way to take them down in a few years, I remember that they had better momentum at that time. All this is just from my memory so it might be wrong.
        I think, and that is pretty radical thought, that those Hordes are biting Samsungs high end in China. If their low end was cut that would boost the profitability, right? Their market share radicaly droped only in China and that is where the biggest growth is now in apsolut terms (number of units). Yes, Apple is growing there quickly, but Xiaomi, Huawei and Lenovo even quicker selling tens of millions of units (maybe hundreds altogether) and their phones (and services) are top class. The price might be low but the UX and the built quality is premium. It’s just that “made in China” label holds them back from being fully recognised as such. Sounds crazy but $300 phones in China are worthy almost as much as $700 Samsung. And there are no subsidies there now. And -Samsung is not a status symbol over there.

      • neutrino23

        If Xiaomi phones have a nice UX it is because they shamelessly copy Apple even more blatantly than Samsung does.

        I’ve only seen one review of their phones and it criticized their poor construction, short battery life and buggy interface.

    • neutrino23

      The point is this is different. This is not like building better DRAMs or finding a better chemistry for displays or figuring out how to build cheaper refrigerators. Much of what they depend on is outside of their control. They can’t make a new OS for phones. They don’t control the OS in laptops. They have no advantage integrating with cars. They don’t seem to have any design sense. In a desperate attempt to preempt Apple in wearables they rushed out smart watches. Any idea how many? Six versions! And they were all duds.

      It is only in the last three or four years that they obtained significant revenue from phones. They might drop back to that level.

      • obarthelemy

        I’ll use the most maligned word “open” again, but Samsung *can* make their own OS, *and* benefit from Google’s ecosystem at the same time, because even GMS (not AOSP) Android is open: they can add anything to it, even change anything, as long as they meet Google lenient criteria: don’t break compatibility and include Google’s apps. That opens huge avenues for differentiation even while not renouncing one of only 2 viable ecosystems.
        And add they did: pen input, windowing+multitaking, KNOX, their own appstore and cloud services,a gaggle of apps and OS extras… and those elements do *not* have to be given back to the Android ecosystem.
        Obviously they haven’t hit the jackpot with any of those yet. But, contrary to Palm, RIM and Nokia, Samsung are not condemned to magic up an overwhelmingly convincing selling point *right now* or die. They can keep piggybacking on Android’s success while trying to find the right lever. Which they might, or not.

      • Fran_Kostella

        Recent reports suggest otherwise, that Google is pushing them to limit their custom additions and toe the line and play by Google’s rules. I am not privy to their private agreements, but there were tech news reports on this topic a few weeks ago that claim this is the case, and it seems a logical outcome of news reports earlier this year on the pair’s relationship.

        Their only hope seems to be to develop a new OS and competing ecosystem that runs on their hardware. I don’t see they have what it takes to do those things on their own (*cough* Tizen). I can’t imagine that Google is going to make it easy for them to build a new competing system that could cut Google out of a sizable segment of the market’s data. If they started to seriously do it, how long until they are voted off the island?

        Just off the top of my head, they need maps, mail, content access, cloud storage, voice assist, and enough market to draw developers, and they tech and toolset to keep them there so that they get apps. Maybe they can get some advice from Microsoft on how hard it is to do this? It seems to me that they are between the proverbial rock and hard place.

      • obarthelemy

        Source ?
        I couldn’t find any recent change of any importance, only trivialities such as displaying “Android” on the boot screen and putting Google Search on the home screen by default. I haven’t noticed any drop in the additions, good and bad, that OEMs do to “vanilla” Android.
        As for Samsung changing ecosystems, 1- if MS, Nokia, HP, RIM… couldn’t build one, Samsung’s probably better off not trying to either (they do have Tizen ready, but an ecosystem is more than an OS); and 2- they can at any time with little disruption, by switching over to an Android fork (Nokia recently said 75% of Android apps run can run GMS-less with no change). The only caveat is that it’s an all-or-nothing move, OEMs must either be 100% GMS-Android (with some flexibility it seems, ie China), or don’t get GMS at all.
        Again, being on Android is probably not that bad, when you look at what happened to those who… I’d say “aren’t”, but given their fate, “weren’t” is probably more appropriate…

      • Nick

        Are you talking about Android Silver? Its pretty much dead now iirc. http://arstechnica.com/gadgets/2014/09/googles-rumored-android-silver-program-is-reportedly-dead/

  • Ted

    Horace, you’ve switched iPad and iPhone revs in the chart – unless iPads are doing better than I thought….

    • http://www.asymco.com Horace Dediu

      iPad is blue, iPhone is grey. Pretty sure that’s what they should look like.

      • Ted

        Ahh, got it, my bad. Thnx

  • stefnagel

    Content creators will run the game going forward. Content referring to all forms of hardware, software, services, games, tunes, apps, etc. Creators referring to us all.

    Content cloners need not apply.

    • GlennC777

      Creation justifies high margins, and that leaves a “margin umbrella” for cloners. What Samsung is suffering from is partly the crowding of that umbrella space with low-cost entrants and partly the market rebuffing its insistence that it too is a “creator.”

  • Stephen Johnson

    Very interesting that Samsung are predicting a fall in revenue back almost exactly to the level it was at when the iPhone 4S came out. Over the past 3 years Samsung have had their time in the sun, first through cloning the iPhone 4 more effectively than their competitors with the Galaxy S2 and then through screen-size differentiation as Apple were slow to respond to the demand for larger screens (which I believe was a happy accident for Samsung, who were probably motivated to increase screen size mainly to allow for bigger batteries to support LTE – another differentiation at the time).

    The specs of the iPhone 5 and 5S would probably have been signed off and locked in by Jobs before he died, so although work on the 6 and 6+ would have been ongoing for a long time, they are probably the first real “post-Steve” iPhones and Apple took the time to ensure they got the bigger screens right rather than rushing to market. Although great phones in their own right, I think the new iPhones represent a bigger leap over the last few generations (akin to the leap from 3GS to 4) in terms of market and critical perception. There were fewer “buts” or caveats in the reviews this time around.

    So Samsung’s differentiation has evaporated at both the high and low ends and they are left with brand power that is mostly a bought and paid for illusion. The key question now isn’t whether Apple can see off Samsung at the high end (they probably can) or whether Samsung can see off low-end competitors (they probably can’t) but whether Apple can continue hardware and software innovation at a level that lets them keep clear water between them and the the low-end competitors?

    • Shameer Mulji

      “…..but whether Apple can continue hardware and software innovation at a level that lets them keep clear water between them and the the low-end competitors?”

      You mean between Apple & Google / MS, simply because the low-end competitors are adopting software platforms by these companies, the majority of which is Google’s Android. The low-end competitors don’t really have any significant software or services prowess.

      • Stephen Johnson

        Aren’t the low end competitors mostly using forked versions of AOSP? In that case they can try to build their own platform and services on top of that, but I’d guess becoming a successful software and services platform company (which requires massive intellectual capital and time) is still an order of magnitude more difficult than becoming an OEM (where financial capital is perhaps enough, at least in the short term). To paraphrase Ed Colligan, “Hardware guys are not going to just figure this out”.

        Such a capital and time-intensive enterprise has huge table-stakes, and even reaching a baseline would require partnerships. I believe that Google and Microsoft’s long-term plays here will to be to provide the killer web services these small companies need to compete. This type of partnership was Steve Jobs’ preferred approach when Apple was the upstart, until Google decided to couldn’t take the risk of being cut out and Apple realised they needed control of the whole widget when it comes to their ecosystem.

        However, it’s just hard to visualise a scenario where Google and MS would ever want to exclude themselves from the high net worth user base that Apple has, so there is just not much differentiation to be had on services unless the privacy implications are unpalatable to Apple, but even then they would always be able to move with the market if required.

        Further, until data speeds are universally lightning fast and/or cloud software takes a quantum leap forward, content creation is going to be a plaform play rather than a services one. Apple’s app ecosystem and richer, more consistent media support means they are winning on that front. It’s interesting that Microsoft is cosying up to Adobe to compete here. I’m not sure Google fully gets content creation but YouTube is their ace in the hole in that area.

        Since the new iPhone is benchmarking at around the speed of MacBook Pros of a few years ago, that suggests that the next inflection point is likely to be the convergence of desktop and ultramobile computing. I think it’s only a matter of time before OSX becomes just another app on an iPhone, able to be hooked up to whatever screen is closest, but best used with Apple’s accessory screens, keyboards, glasses, or whatever.

        In the medium term, Microsoft is better positioned than Google if/when that paradigm shift happens (as Google don’t yet have a real fat client desktop OS), but less well positioned than Apple. Power consumption is the current obstacle and Apple will have the profits and economies of scale to buy up new tech as it emerges or roll their own. Some misread Apple’s obsession with device thinness as a purely aesthetic consideration, but it is all really about a fanatical drive to reduce power consumption with an end game of personal supercomputing.

        It looks like Google is betting on connectivity trumping power efficiency and client capability in the long term (or at least making it much less important). The jury is out on that because it looks like in the short term, intensive competition between hardware companies is likely to drive power efficiency harder than carrier competition will drive bandwidth (and connectivity varies globally in a way hardware performance does not), but since the ultimate limiting factor on both is likely to be the laws of physics, maybe a scientist could predict the winner?

      • obarthelemy

        Outside of China where Google’s services are not available and therefore GMS Android makes no sense, AOSP is about saving a few bucks per device for GMS-required sensors and radio, and a double handful of $k for certification. Adding GMS is just a download away anyway.
        I’m curious about how Apple has richer, more consistent media support ? Both on the hardware side and on the formats side, I find them with strong proprietary leanings, and more limitations.
        I’m intrigued by convergence too. On the one end, having fewer devices, and fewer file sync/xfert headaches sounds great. On the other hand, I often diddle with my phone while working on my PC, and I’m not that hot about investing in a docking station (Samsung has those, by the way) that are horrendously overpriced (as in, as expensive as an Android desktop+keyboard+mouse+ doodads) and going out the windows at my next phone/tablet upgrade.
        As far as fat/docked clients, Apple’s dogmatic insistence that touch and keyboard+mouse cannot be made to cohabit harmoniously either shuts down any moves in that direction, or paves the way to a “designed for your hand”-like U-turn. Android and Windows Phone are already there (without any drawbacks, by the way), but it doesn’t seem to excite much tough.

      • Stephen Johnson

        You’re reiterating my point re: AOSP – eventually they will have to come back into the Google tent, roll their own services (like Amazon) or go to Microsoft or others providing best of breed cloud-based computing. Apple are a platforms company first and that is the thing that is hard to replicate.

        Apple devices don’t support every codec out of the box but from a developer’s point of view they have consistent rich APIs for 3D (Metal), Sound (Core Audio), camera etc. Users don’t want to worry about installing codecs or copying files, they want things to work. Apple is not so bothered about how the experience is for people who get their movies from bittorrent, they care about the people who get their movies from iTunes or Netflix, and the developers who create those experiences. At some point, the cloud will convert video files on the fly and hardware codec support won’t matter as much.

        With regards comvergence, in the future, docking won’t be a thing – everything will be wireless. Apple will be dogmatic until they aren’t, but I don’t think they are thinking about it in the same way as Microsoft. Apple are setting up all the pieces in plain sight. Continuity allows files to be edited on a Mac and picked up on an iOS device and vice versa. Now imagine both OSes running on one hardware device (the phone), with instant switching between the two (or both operating simultaneously).

        It’s not about one interface for all scenarios, it about seamlessness and value. That’s what will get people excited. The problems to solve are power and the responsiveness of the remote screens. A “ScreenKit” SDK? Next gen Made For Airplay? “Here’s the new iPhone – and it’s a Mac”?

      • charly

        Most people who use itunes or netflix also use bittorrent. And with the heavy users it is even more common.

      • Stephen Johnson

        That may be the case, but Apple are not prioritising the user experience of copyright infringers, they are prioritising the experience of users who are willing to pay for quality.

        Having said that, there are far more frictionless ways of watching obscure video formats on an iPhone other than converting and physically loading onto the device eg. A home server running Air Video or Stream2Me must make more sense to a technical user in a 4G world, than VLC does?

      • charly

        The number of users that want to pay for quality and are not heavy copyright infringers is small. Air Video and stream2me are re-converters which adds a lose in picture quality

      • remux

        The majority of pirated video is now h264 video and aac audio, which plays perfectly with no re-encoding (perhaps just on-the-fly remuxing for the container).

      • MarkS2002

        Most people you know using Netflix use bittorrent. Most people I know using Netflix do not use bittorrent. I wouldn’t claim to know what most people do because I don’t have access to those numbers. Do you? Personally, I think this is a major differentiator between Apple customers and Android/PC users, but I have nothing official to refer to.

      • http://www.noisetech-software.com/Home.html Steven Noyes

        I would say most that use iTunes seldom use BIT Torrents.

      • charly

        So what is the common file sharing program for itunes users?

      • charly

        Apple dogmatic shows in their phones which all can be operated one-handed (except the 6 obvious because Apple isn’t dogmatic, it is just show)

    • Ray

      Samsung had incentives to sell bigger phones mainly because they also produce displays. Samsung owns very expensive components fabs (memory, SoCs, OLED displays, etc.) that need to keep producing at full capacity, so it’s in their interest to ship as much advanced components as possible inside its smartphones and other devices. Bigger phones was a way to differentiate from Apple and also a way to sell more displays and move competitors to increase display size too. It turned out also very successful particularly in countries where people used smartphones as their main computer and therefore had to write emails and overall generate content on them, not just consume.

      • Kizedek

        One incentive to sell bigger phones is to allow for larger batteries, more internal components and poor internal design — just to compete with the iPhone.

        Apple’s industrial design, component design and integration allows for better performance in thinner and smaller cases, despite having lesser specs in terms of MHz, number of cores, RAM, etc.

      • Tatil_S

        Prevalence of cases, especially the overly thick or gaudy ones, could be taken as evidence that industrial design does not matter for most customers, even for most iPhone buyers. 🙂

      • obarthelemy

        Or antennaes that you can’t hold wrong :-p

        More seriously, I’m for Occam’s razor: phone are getting bigger screens because customers want phones with bigger screens.

      • occam

        Do you know that “one incentive” doesn’t mean “the only incentive”? Occam’s razor would also suggest that the reason no other 3.5-4″ phones during those years had “flagship” performance, battery life, etc, was perhaps not solely a choice.

      • charly

        Most things are more expensive to do small. That is also somewhat true of screens.

      • obarthelemy

        What’s the incentive for all others, non-display producing, competitors. Consumer demand maybe ?

      • Ray

        Consumer demand is a horizontal factor, it’s obviously an incentive for all OEMs. But when planning new products, companies that own display fabs obviously have a stronger incentive to push the size of the screens in their devices than companies that don’t own those fabs, since the same conglomerate captures those additional display sales. Basically Samsung has an incentive to push the envelope in the display area. Hence the Curve,Edge and foldable phones that they are already prototyping. Companies that produce their own OS (like Apple) obviously have an incentive to push the envelope in the OS department.

    • charly

      Apple does not have real competition so they can manage their improvements. See the 6 which is just a 5S with a bigger screen and not much more. Samsung can’t do that. That is why they had a S2 plus (the Note) and not waited like Apple for 2014 and why they have problems now because the S5 is just a slightly faster S4 with some useless toys. Apple will have this problem with the iphone 7 as it looks like their only significant improvement will be saffier glass and i don’t think that that will be enough

      • KirkBurgess

        Apple has consistently added major hardware and/or software features every single year for the iPhone – only a fool would expect that to suddenly stop.

        For instance I’m picking Primesense technology will be the big inclusion in the 2015 or 2016 model, yet another integrated hardware & software solution competitors will not be able to easily copy.

        And to top it off Apple will have the only handsets capable of working with the Apple Watch, yet another exclusive feature not able to be copied by competitors.

      • charly

        The major improvement of every iphone before the 5S was speed. 5S was coasting (plus they still had speed compared with 4S) and the 6 has as advantage screen size. In short nothing unexpected or new

      • StevenDrost

        You’re a little over simplifying. It was the wild west and there was huge hardware leaps in every dimension (cameras, connectivity, thinness and of course speed) for years. We are at a point now where I couldn’t care less if they make the device faster or thinner. I agree with the spirit of Kirks comment in that they will likely pack some new feature into the next generation which would lure in customers. But it’s becoming a little less obvious what those features will be.

      • Tatil_S

        >”We are at a point now where I couldn’t care less if they make the device faster or thinner.”
        Previous CPU generations used to jump 2x in processing speed, but the increase in A8 is noticeable smaller. It seems they focused on efficiency rather than speed. As I don’t play games on my phone, I’d agree with the trade-off at this point.

        By the way, I also thought I would not care if they made the phones any thinner or lighter, but then I went to the Sony store and briefly handled three different Xperias. I have no idea what the differences were between them (marketing message was a true mess there), two of them were almost twice as thick and the relatively thin one (flagship model?) felt more than twice as heavy. (One of the thick ones were waterproof, but I don’t know whether waterproofing was what made it so thick.) It turns out I do care about the weight and thickness. 🙂

      • KirkBurgess

        Not sure what you mean by coasting with the 5S seeing as it introduced Touch ID which has yet to be even be closely matched by competitors.
        Just like its 64-bit architecture & OS which is also still absent in competitors devices.

      • charly

        It is not something you want to match. Touch ID is bad security so having a crappy implementation is actually better.

    • Fran_Kostella

      I think that Apple doesn’t have any choice but to stay on the tiger’s back and try to keep pushing the tech in the right direction for their advantage. The most critical issue I see in mobile is battery technology, and the thus the intense focus on performance and power consumption. As an iOS developer, I’ve been watching the work they have been doing on the software side in amazement. I’ve worked on nearly all major platforms from many of the tech leaders of the last few decades and I’ve never seen so much well thought out platform development. It is clear that they have long term plans and are executing on them in a very intentional way. This is not typical and is an advantage that doesn’t get much press.

      The other driving force is their marshaling massive resources to produce new tech on a regular basis at immense scale. As Horace has pointed out a number of times, this is something new in the world. I don’t see how they can back down from this, they have to ride it out as far as they can and as long as they can, pushing the limits of production and taking advantage of their integration to push for every advantage possible. Imagine that they take over the majority of the existing high end Android because Samsung stumbles. Where does that leave Apple? Smaller players or organized collections of smaller players working to build competitive ecosystems? Blatant hacking and IP theft from thousands of tiny shops fueled by next generation chipsets? State sponsored ecosystems? They have no choice but to keep building things that are hard to copy or match.

      As we move into a world where each of us has hundreds of wireless devices (and then thousands), mobile becomes something else altogether. Apple has no choice but to ride the tiger or be left behind. So far, they seem to be hitting all the right notes.

      • Walt French

        To complement your fine observations, I’ll add two perspectives. (Sorry, no links.)

        First, Cook was recently asked about competition and said that Google — not Samsung — was who he was taking most note of. I don’t believe he laid out a detailed response, but it sure seems to me that Samsung is in a position where it can neither restrict Android’s wide availability to low-cost localized competitors, nor integrate privacy, security, 64-bit functionality for high-end processing, etc. Google obviously IS in the position of demanding that all Android devices have a high-quality fingerprint scanner and 64-bit CPU, but it would be futile as most OEMs aren’t skilled in any of the areas, nor do they have resources to discover, buy and integrate those technologies, so they would be locking out every OEM except Samsung. And Google is hardly about to insist that every phone have $300 of hardware costs.

        Perhaps Google will fork Android into a high-end and a low-end set of specs. That still leaves them with a LOT of development work to have a high-performance, well-designed set of features. But in any case, Samsung does not have the ball in its hands, and their Tizen initiative shows how they were quite happy to charge ahead without realizing that it could not succeed under the current Android program.

        The other point of interest is the standard paradigm that as markets mature, componentization and commodification go hand in hand; Horace has mentioned this point multiple times.

        But not, as I recall, either to say it applies to smartphones, or to deny it might. Was there some hint of too-early, proprietary work on the question?

        I happily jump into that breach: Apple is changing the rules of the game, and therefore, consumers’ expectations about phones. Both the privacy and payments initiatives are likely to be very well-received (the first by the tech press; the latter by consumers), and they mean that older phones or new phones lacking those features are no longer “good enough.” That means it’s too early to just assemble phones from off-the-shelf building blocks of hardware & software; standalone building blocks simply don’t exist — likely won’t for a few years, even presuming Apple hasn’t figured any NEW features that will turn into must-haves once Cupertino pulls together all the pieces.

        Both of these points have to do with difficulty Samsung should have in the future, with competing against Apple at whatever “end” Apple chooses. (Will they go after a middle end?) The fact that Samsung is already unable to sustain momentum suggests that either consumers are much more forward-looking than we assume, or that Samsung has a lot less ability than we’ve generally given them credit for.

      • charly

        Apple and privacy? I somehow doubt it will be something without weekly problems.
        Google would be excellent at privacy* as long as privacy* means that nobody but you and Google know stuff.

        Apple and security just means that a payment systemn will blow up in their face and likely multiple times.

      • Sammy

        You mean the Google that didn’t bother encrypting their users’ info when transferred between Google’s own data centers?

        The Google that didn’t start encrypting the data until they found out that the NSA had been logging it all for years by tapping directing into data lines.

        That wasn’t a pro-active defense of user security or privacy. It was a massive oversight by the largest data mining organization in the world.

      • charly

        NSA behavious is just criminal behaviour. Google didn’t expect that they would be ****-****** by the US government. The only entity that could organize such a thing on a useful scale.

      • pk_de_cville

        “Google didn’t expect…”

        Apple designed security with the NSA in mind. Quite a difference in thinking.

      • charly

        Before or after? Besides Apple doesn’t have a good name with security. IIRC those NSA papers stated that they where the most cracked.

      • pk_de_cville

        Apple’s been designing high level security for the last 20 years, but that’s still after the NSA.

        Link to your “most cracked” source?

      • Fran_Kostella

        Your take on the longer term strategy provides a lot of excellent food for thought, thanks for elaborating. It seems certain that Apple’s strategy is to continue driving the definition of the smartphone into areas the competition finds difficult to follow.

        Cook is right to be watching Google, given the many ways Android is proliferating outside of the phone segment. I’m thinking of the many new embedded devices appearing based on Android. Part of the path forward seems to involve many “small” devices in orbit around a personal infrastructure of devices that hook to the large scale cloud, and Android is poised to thrive in that world due to low cost and existing developer mindshare. I’m not sure if Apple is thinking about “iOS everywhere” but they have been making an effort in having your Apple device be at the heart of your personal cloud of devices.

        The increasing drumbeat of security concerns by the public suggests that we will evolve some new negotiated layers between private and public. Since Google depends on free services in exchange for data and is the driving force behind Android, I imagine that they could offer the lowest cost services where security is defined as data shared between the user and Google and secure from the rest of the world. I can see Apple acting as the largest alternative, providing security for a higher cost, where security is defined as your devices are all secure from the rest of the world. Some of the new APIs and the existing excellent security systems point this way.

        One aspect of the evolution of devices that I find interesting is the interplay between battery, memory, CPU and like processors, and the OS software and how it works with app software to provide not only a great user experience, but to most effectively use the hardware and minimize battery use. Since Apple owns and designs the hardware they use, this gives them advantages that others find hard to emulate. This plays out in a number of ways that don’t always get attention.

        First, the developer toolset is excellent. For the five years I’ve been writing iOS code, the device simulator has not only been nearly always an accurate mirror of actual device behavior, but it is super fast and easy to use. In fact, one problem you sometimes need to be careful about is getting used to the speed of the simulator or memory use patterns that are different on actual devices. There are OpenGL and Metal simulators and a set of great performance and analysis tools and a number of third party tools that address the ugly part of software development. And, importantly, there are the LLVM compiler tools.

        Years ago Apple decided that it had to invest in a new compiler technology with a modern flexible architecture and the result was a set of tools based on LLVM that have been paying off over the last few years. The details can get technical, but the summary is that the better architecture has been enabling big improvements in developer productivity and software performance in each major release. This, I believe, is the cornerstone of the software power efficiencies and the memory usage improvements in ARC. The ability to abandon garbage collection AND manual memory management cannot be overstated. Given how batteries constrain memory and how garbage collection impacts the UI and therefore the usability of apps, this is critical.

        I could ramble on at great length about developer tools, but the gist of it is that software development has a craft component to its exercise, and craftspeople develop strong attitudes about their tools. I’ve avoided plenty of software houses where the attitude to tools was wrongheaded or backwards looking, or simply cheap. In my experience, great developers are concerned with their tools and build what they need if it doesn’t exist, or happily adopt great tools when they find them. The toolset available for iOS is excellent and getting better, and I’d like to see it grow even more. Anyone concerned with drawing in developers needs to address this area.

        One more point that doesn’t get enough attention is the evolution of CPUs and related chips. It has been years since I’ve been able to keep up with CPU microarchitecture, but the long term issue aways seems to be in the mix of heat, efficiency, and complexity. As long as I can recall the thinking has been that we need to rely on multiple parallel processors. Of course, the issue there is that it hard enough to write bug-free code that runs on one processor, splitting the work up just makes it an order of magnitude harder. Despite this, we have been slowly adopting multiprocessor devices over the decades and trying to evolve solutions to the problem (I’ll avoid talking about processes and threading and the complexities of multi-threaded code!) and Apple decided a few years ago on a solution to a large portion of these problems.

        Grand Central Dispatch, GCD, is the system that Apple developed. It allows developers to break tasks into blocks of code and queue them up in GCD. The queues can have relationships and guarantee certain behaviors, like performing some blocks in order, or providing signaling to indicate when certain goals have been achieved. This requires developers to adopt a slightly different way of thinking about code, but in practice it is trivially easy to do and its adoption has steadily been growing. What it means is that Apple has a solution in place and widely adopted for the growth in processor count in future devices. From here, it is a technology already baked into their operating systems that is going to, just like LLVM, continue to pay off over time.

        Sorry, this has gone on a bit, but hardware and the app ecosystem gets a lot of attention and I wanted to add a bit about the stuff the public does see very much that is a great asset to iOS and which will help it distinguish itself over the next few years.

      • DesDizzy

        Thanx for the tech deep dive, much appreciated. I wish Oberthelemy & Charly would actually read this stuff & educate themselves instead of repeating the endless trolling.

  • Fran_Kostella

    It seems to me that Samsung has reached, or is about to reach, a crisis point. They have a long history of taking other’s innovations and using their own industrial might and power to make huge profits from those innovations. But, as Horace has shown, success at this level requires more than manufacturing ability.

    They sacrificed expertise in software and building an ecosystem by building on Google’s ecosystem, and now they have only the last few year’s massive profit to show for it. They don’t have an ecosystem, they are not a center of software excellence or design excellence and therefore they have no clear path to building an ecosystem or differentiating their products. They can rattle their box of Tizen pieces at Google, but that has no impact on anything. They can’t match Apple’s level of integration and they can’t win against the school of smaller fish nibbling away at the low end. And they surely know that the return on marketing spending eventually flattens out. This isn’t a good place to be.

    The leadership’s public pronouncements about what they need to do to succeed have been clear on this. They need to become creative and innovative as soon as possible. By the way, everybody also needs to work harder and longer.

    However, you don’t snap your fingers and suddenly get a world class software infrastructure. Nor can you get deep at design overnight, especially after generations of mediocre design. I’ve got lots of Samsung hardware in my home and consider it a good value for the quality of hardware and build quality. But the design only has polish and lacks any depth. And the UX/UI is hopelessly bad. For example, I have a Sumsung TV (essentially a big monitor with lots of plugs and some software) and to switch to a different media source I have to use a lot of button presses and navigate many menus and hit a half dozen confirmations even though my hardware setup hasn’t changes for a few years. Over and over and over. Frankly, it is insultingly bad and 15 years behind the times. I’ve worked with good industrial designers and UX people, so maybe this has ruined me, but I find it very annoying to use.

    I don’t know what they can do, but I would not assume that they are guaranteed to survive at their current level without reinventing themselves and succeeding at it. There are certainly small disruptive competitors who have their eye on Samsung’s markets and who are thinking about asymmetrical competition strategies. The one thing we do know is that a lot of the tech we use today will be obsolete in a decade at most, so what are they doing about that?

    • StevenDrost

      To play devils advocate. Their shameless copying of Apple is why they were so successful. If I ran the company I would have done the same things. It’s one thing to say they should differentiate through software and services, it’s quite another to execute that. Samsung’s lack of differentiation is not from a lack of vision or strategy. Look at their competitors from a decade ago and you may have a slightly more positive outlook on their present competitive position.

      • Fran_Kostella

        Right, I agree that vision is not execution and I thought I was commenting about that issue, and I’m not actually advocating FOR Samsung to do anything specific.

        I don’t understand the bit about their competitors of a decade ago, nor why that improves their competitive position now. They weren’t competing in terms of hardware/software platforms/ecosystem a decade ago, were they? I missed it or don’t get it and I don’t see what arsenal they have against Apple/Google/Cheap Android Phones. Can you elaborate on that? If there is a big part of the current story that I’m missing I’d like to improve my understanding, thanks!

    • GlennC777

      My strong impression is that Samsung’s corporate culture is fundamentally incompatible with real innovation. They are closed, hierarchical, punitive, political, and deeply corrupt. They are driven to the point of fanaticism and able to compete aggressively in the predictable, linear progression of technological iteration, but the type of open creative exchange that leads to real innovation seems not just alien but completely antithetical to them. A matter of DNA – rather literally, considering the company’s leadership.

      • http://www.jlist.com Peter Payne

        Remember, they have more employees than just about any other company. Source: ArsTechnica.

  • hello horace

    Hey Horace, have you done a piece on the iPhone 6/S numbers yet and how that tallies with Apple/industry estimates for Q3?

    Nice comparison with Samsung above. I held off from buying the stock recently as I figured Lenovo et al would be eating their lunch in the Phone department – but, let’s face it, it is a tremendous company, and has a pretty deep bench, so I wouldn’t bet against it.

  • berult

    “Brand value can be paid for or it can be earned. Is the result the same?” Horace Dediu @Asymco

    “You guys always say this stuff as if Apple never run any ads :-).” Marc Andreessen @ Marca

    Apple does indeed advertise a lot.

    Half their paid-for brand value builds up from Apple ads devised and paid for by their prime competitor. And this unwitting accolade happens to make-up half of what is truly earned through relative competency.

    Hence, half of Apple’s success story is written through no virtue of their own, …but through de-vices overblown…:-( berult.

    • StevenDrost

      The genius of Apple is that they get so much free advertisement. Every product announcement and keynote is all over the news and it cost them next to nothing. Samsung spends way more on marketing and does not get half the press.

      • GlennC777

        That is one of the natural consequences of their leadership position, and as such it is something they have earned. People are interested in what Apple does, because what Apple has done has proven to be important in the past. What they do today will likely prove to be important as well.

      • suntzu

        You’re right, but free PR is not only an afterthought or mere coincidence – it is a very deliberate and well thought out strategy. I wouldn’t be surprised if there’s a small department in Apple with sole responsibility of pissing Samsung PR execs off. Like buying billboards next to their homes and putting apple stuff))).
        SunTzu in Art of War said: Feed off the enemy – steal one bushel of rice from your enemy, it’s worth twenty of your own.

  • Tatil_S

    In a not-so-high-margin business, profit can drop precipitously if revenue drops a little or costs increase a bit. If that was due to simple misstep, profits can improve fairly quickly, but revenue dropping by a quarter in a year sounds more alarming. If most of that drop is due to mobile, that means handset revenue dropped by about 40%. If the volumes indeed did not decrease, that is a huge drop in ASP.

    Besides, we should keep in mind, a good chunk of “marketing expenses” are actually sales commissions, which artificially inflate wholesale prices (and revenue). If increasing marketing expenses mean increased commissions in addition to decreasing ASP, the “real” revenue drop is probably even bigger. Based on personal observations, I don’t see such severe drop in sales or brand value, so the deep fall could be due to a painful adjustment of channel inventory to match the actual end sales. Samsung’s revenue may stabilize and start growing again albeit more slowly very soon.

  • charly

    The problem for Samsung is the S5, which is just an overclocked S4. So why buy the more expensive model?

    • StevenDrost

      No the problem is anyone else can put the same components in a similar shell. Or as Horace put it “The absence of differentiation vis-a-vis other vendors”.

      • obarthelemy

        Not true though:
        – the screen is made by Samsung, and AMOLED technology at that level is a Samsung exclusive
        – many other less critical elements (RAM, Flash, supporting ICs) are also made in-house. Though available from other suppliers, that does open the possibility of lower costs, or differentiation
        – some versions use the in-house Exynos SOCs (some use a Snapdragon)
        – the camera also is Samsung-made, though not noticeably better than other best-of class cameras, but at par.

        That is quite a bit of differentiation right now (I still miss my Note’s true blacks). Even nemesis Apple still has to source some components from Samsung, and Samsung might already have a price, availability and features lead over most competitors.

        i-nalysts keep harping how great it is Apple has its own SoCs. Imagine SoCs+screens+cameras+memory, and not only the design, research and IP, but the factories to make them.

        Even the software side is quite capable, as the KNOX suite, S-Pen, multi-windowing, and other various features prove. A fair bit is mis-directed into less worthy endeavours though.

        Samsung do lack design and marcomm flair (not budget ^^), and are probably neither willing nor able to forgo the low-end like Apple is, dooming any “luxury” ambitions. They do still have a great leg-up on competitors who can only assemble third parties’ components.

      • GlennC777

        This is not a point of weakness for Apple. It is an important advantage.

        The cost side of owning your own tech is that these are very capital-intensive businesses. The return on the types of massive capital investments required tends to be low in the long-term, and can easily become negative. Even in the best case they represent enormous fixed costs and reduce the company’s ability to switch to different tech when needed.

        Apple is in the enviable position of having immense leverage and buying power, enabling them to source any tech they want without having to front the cash to build factories or correctly anticipate tech life cycles. This is a far better position to be in than that of a high-cost, low-margin provider of quickly-commoditized component parts.

        Owning the factories is the tech equivalent of digging ditches for a living.

      • obarthelemy

        that’s a bit simplistic. if only because Apple’s *are* spending billions building factories, only… for their suppliers to operate.
        As for fixed costs vs margins… trenches sometimes, sometimes Intel; the main drawback of not having factories is that you can only buy the same stuff as everyone else.

      • GlennC777

        On the contrary. Apple has been writing the book on this. They have every possibility available to them and have exploited each and every option and have invented new ones where none existed before. They are operating like surgeons as Samsung wields hammers.

      • runofthemill

        “the main drawback of not having factories is that you can only buy the same stuff as everyone else.”

        Ah, yeah, great point. Explains why the A-series chips are so run-of-the-mill and off-the-shelf and don’t demonstrate a commanding design lead.

      • obarthelemy

        explains why they’re built on the same process as everyone else (as opposed to, say Intel’s chips and Samsung’s chips), and anyone making the effort to design a similar chip could have a similar product.
        Is it clearer now ?

      • runofthemill

        The same process doesn’t necessarily result in the same “stuff” to buy. The result is obvious.

      • obarthelemy

        But… isn’t the same thing valid for phones built from the same parts and in the same ecosystem, then, contrary to what the article says ?

      • runofthemill

        I don’t know what you mean. Did you miss the phrase “doesn’t necessarily” or interpret it as “doesn’t ever”?

      • Mark Jones

        Let’s see. Qualcomm, Samsung, Nvidia are all making the effort. But they designed different, not similar, chips. Unless you’re asserting, by definition, that all ARM-based SoC’s are similar.

        Why are they different? Possibly because each company has different design goals, principles, patents, or ability.

        Or analogously, are you seriously suggesting anyone making a similar effort to Horace can make an Asymco-clone website?

      • Mark Jones

        You’re way off. For semiconductors, Apple can only buy the same production processes (20nm, or 16 nm, or 14nm) but Apple can have its own unique ARM-based designs.

        For other components, such as aluminum casing and sapphire glass, Apple owns the equipment in those factories, so it can not only have its own designs, it can have unique production processes. In these cases, Apple uses other companies’ factories in much different way than you think.

      • obarthelemy

        I always love it when people tell me what I think. What do you think I think ?

      • Mark Jones

        I don’t tell you what you think. You already told me you think “the main drawback of not having factories is that you can only buy the same stuff as everyone else.”

      • obarthelemy

        Do you have a concrete example of Apple parts not available to everyone else ?

      • notavailable

        SoCs, Touch ID sensor,

      • obarthelemy

        SoC is a standard ARM core with a standard GPU fabbed on a standard process (one step behind Intel’s). Apple chose to go 64-bits early while the others went big.LITTLE and more cores, but that’s a choice.
        Touch ID equivalent was on phones before the iPhone…

      • notavailable

        Haha, good one.

      • http://www.noisetech-software.com/Home.html Steven Noyes

        The A7 and A8 are custom ARM cores much like Qualcomm has done with the Snspdragon line.

        You need to read up on technology before commenting on it.

      • obarthelemy

        How come you’re not also telling that to mr “touch ID” ? A bit biased and selective in your peevishness maybe ?
        Also, source, about the A8 ? I haven’t seen any authoritative doc about whether Apple’s tweaks are more than cache size changes.

      • http://www.noisetech-software.com/Home.html Steven Noyes

        I just have to show a single example where you are 100% wrong to demonstrate you don’t understand anything about what you are talking about. The Apple ARM designs (like Swift Core) are in no way standard ARM designs like you falsely claimed.

        As for TouchID, name a single phone that had had a full, non-swipe finger print reader before the iphone.

        Oh snap. Again, you don’t know what you are talking about.

        It isn’t bias it is simple fact. You make up things to fit your world view.

      • obarthelemy

        Again, source ?
        As for swiping or not.. yeah, changes everything…

      • changing

        “As for swiping or not.. yeah, changes everything…”

        It does, yes. Glad everyone could agree here.

      • http://www.noisetech-software.com/Home.html Steven Noyes

        Wrong on two. If you don’t know how to use Google or DuckDuckGo to find out about the A6, A7 cores, I don’t plan on teaching you.

        You were 100% wrong on the entire post (as your are frequently. You don’t understand the differences between opinion and facts. Objective VS subjective). Standard ARM cores and TouchID (Swiping really does change everything).

      • obarthelemy

        So, no source… I guess the shrillness on the invective is inversely proportional to the validity of the claim. Smokescreen maybe ?

      • http://www.noisetech-software.com/Home.html Steven Noyes

        It has been widely covered on the design of Swift Core. It would do you good to actually research a topic before you just make stuff up so I am giving you that chance. For example, where is your source showing the A6 and A7 are simple standard ARM designs?

        It is amazing how often you make up stuff about Apple and their products to fill in your substantial gaps in your actual understanding of their products. Sometimes, it reads as if you are reading reviews of the original iPhone and think all development stopped there.

        A smoke screen on your part perhaps?

      • obarthelemy

        The only thing I’ve seen about Swift core is some tweaks of functional units numbers and fewer RAM lanes, so again, if you’ve got a source, I’d be happy to read it. But, it seems you’d rather invective than enlighten. That’s a personality type.
        As for my sources, same as always: wikipedia, anandtech, chipworks. Yours ?

      • http://www.noisetech-software.com/Home.html Steven Noyes

        Multiple sources have determined Swift was actually a hand layout design. This includes anandtech and chip works that you don’t seem to understand when you read it.

      • Mark Jones

        The A8 is an optimization of and progression down the path Apple took with A7 Cyclone and A6 Swift, which differs significantly from current mobile SoCs from competitors. One difference is that Apple’s intense focus on power efficiency leads to different choices than Samsung or Qualcomm. This principle might be more aligned with Intel’s, but Intel isn’t designing ARM chips. (Intel is fabbing Altera’s Stratix ARM-based chip but fabbing and designing are very very different things.)

        Most of the use of the A8’s additional transistors and die size is unknown (see Anandtech). Given the A6/A7’s big differences from its competitors, it would be very foolish to believe the unknown is more like its competitors. After all, it is unknown for an obvious reason. And from the parts that are known, we know the A8 is not radically different from the A7, and thus, still not like its competitors’ SoCs.

      • obarthelemy

        What’s certain is that they’re tweaking the number and size of some blocks (cache… ). To me, whether they’re redesigning some or all blocks’ innards is unknown. Qualcomm’s Krait is a custom execution core, and Qualcomm have a custom GPU. We already know Apple don’t have a custom GPU, and nothing much beyond that.

      • Mark Jones

        So even though you say you know nothing much about the Apple A7/A8 beyond the non-Apple-only Imagination PowerVR GPU, you repeatedly assert Apple’s CPU is not a custom core, while Qualcomm’s CPU is a custom core.

        Yet both Apple and Qualcomm have ARM architecture licenses, of which Anand Lai Shimpi (founder of the site which you claim to read) wrote: “The final option is an architecture license. Here, ARM would license you one of its architectures (e.g. ARMv7, ARMv8) and you’re free to take that architecture and implement it however you’d like. This is what Qualcomm does to build Krait, and what Apple did to build Swift.”

        The most obvious explanation is you choose to ignore whatever you want. So most here ignore you or have very little patience with your seemingly-trollish comments.

      • obarthelemy

        Well, if you have more info than I have you’ve been hiding it strenuously. I’d be happy to be enlightened, if you’ve got what’s needed. Seems you don’t, and you”‘re the one calling people names.

      • Mark Jones

        Wow, when did I ever call you names? Sheesh.

        Um, you could’ve found it with a simple Google search under “who has ARM design licenses.” Kind of reinforces what Steven Noyes commented on 15 hours ago.

        I just tried to enlighten you and got a real peevish response. Doesn’t seem so happy. Nobody else even wants to tell you what you can easily find on Google. Bye.

      • obarthelemy

        Having an ARM design license does not mean you *are* tweaking the cores, it means you *can* do it. I’ve got a metric ton of wine in my cellar that I could drink, yet I’m not.
        All the info I have points to juggling of blocks, not changes within blocks. Being helpful would be pointing to sources to the contrary. Obviously you can’t or won’t. Bye indeed.

      • Mark Jones

        “This is what Qualcomm does to build Krait, and what Apple did to build Swift.” Anand Lai Shimpi

      • http://www.noisetech-software.com/Home.html Steven Noyes

        In other words, you make up data to base your limited world view of what you want to believe instead of basing it on facts.

      • DesDizzy

        Guess you’ve never heard of PA Semi who we’re bought by Apple & who had some of the best semiconductor designers in the business.

      • DesDizzy

        See anandtech for extensive semi level review

      • Mark Jones

        Although they are based off ARM cores, there are clear design differences between Apple’s Ax-series, Qualcomm’s Snapdragrons, Samsung’s Exynos, etc, that make each a custom design. And it’s obvious that no other company can buy the Ax chips, so that’s a “concrete example of Apple parts not available to everyone else.”

        Touch ID includes hardware and software that no other company has. It is common knowledge that Authentec has patented differences from other fingerprint sensors. And the evidence is in significantly better performance found in Touch ID than those other fingerprint sensors that came before and after.

        Are you seriously claiming that all intellectual property is bogus? Gosh this is exhausting.

      • ptmmac

        Unless you are willing to pay the cost for any design choices you make in the design of someone else’s factory. Apple is having it’s cake and eating it too. They pay upfront for the specific factory they want and move on if there are problems in supplying their needs. The most important and critical equipment in the factory belongs to Apple so the operator does not need nearly as much capital to build the factory. They can agree to give Apple exclusive use of the factory for x number of years. See what happened to the sapphire factory that did not meet Apple’s standards for production. They lost the long term contract and have declaired bankruptcy as a result of their own mismanagement. Apple simply took their capital and walked away. Half a % of Apple’s cash on hand was expended and the bleeding stopped immediately. No one else could do this, so no one could have matched Apple feature for feature if they had succeeded.

      • StevenDrost

        I disagree. Just look at their capital spending. In the last 5 years they have gone from buying off the shelf chips to designing their own, to owning their own manufacturing equipment, and they have provided loans to their manufactures. They have just been smart about which pieces to invest in.

      • GlennC777

        Quite right. That’s what I meant in my later post, now far down-thread: “They have every possibility available to them…” etc.

      • Mark Jones

        So why do you think Samsung has seen declining revenues for the past year? Is it just because it’s lacking in design and branding?

        Samsung’s own executives have been quoted as saying the company needs to focus on the low-end, even though the S5 is selling below expectations (plus charly says it’s just an overclocked S4 (circa 2013) so I assume it’s lacking in any further high-end differentiation). Wouldn’t it seem they need to work on the high-end? Would they give it up just because they lack design and branding chops?

      • obarthelemy

        That’s what “Samsung do lack design and marcomm flair” means, yes. There are other tidbits in the OP.
        There are other other reasons such as premium pricing, and strong price pressure and pressure on the high-end in many markets in which they’re strong.

      • Mark Jones

        “That is quite a bit of differentiation… Even the software side is quite capable.” You indicate you disagree with the OP, especially regarding differentiation and software.

        Now you state a cause as “strong price pressure on the high-end” which I take to mean Samsung’s differentiation/software has not been enough to successfully combat that premium pricing pressure. For Apple faces the same strong price pressure, and it has not changed its price points, and yet is not facing the same declining revenue/profit problem.

      • obarthelemy

        Which OP ? That post was an answer to “the problem is anyone else can put the same components in a similar shell”.
        As far as my statement, it is “strong price pressure and pressure on the high-end in many markets in which they’re strong”. There’s more price pressure in unsubsidized markets, where Android in general and Samsung in particular are comparatively stronger.
        Gosh this is exhausting.

      • Mark Jones

        Apple also sells iPhones in those same more-price-pressure unsubsidized markets. Yes, Apple sells less units than Samsung in some of those markets, yet Apple still makes a good profit because some people are willing to pay the iPhone price for its iOS differentiation.

        Clearly, Samsung keeps choosing to lower its high-end Galaxy S/Note prices (and give up profit) in order to sell more units in those markets. Why does Samsung do that? One reason is because few people are willing to pay its high-end price for its poor differentiation. I suspect another reason is Samsung’s vertically-integrated business model is heavily dependent on sales volume, and unlike Apple, Samsung can’t just shift and sell these high-end units in subsidized markets, where even you imply Samsung is comparatively not as strong.

      • obarthelemy

        In unsubsidized markets, it’s not about Apple vs Samsung that much, it’s about High-end vs mid/low end. Look at Apple’s share in Fr, Ge, Sp, It, those markets are more unsubsidized than most. Apple is 10% there mostly, if that.
        Also, Samsung are *raising* Note prices. I paid 540€ for my Note (v1) way back when, at launch. The GN4 will be 730€. “S” prices seem stable (S3 was 650 at launch, S5 is slated for 680). Price degradation, spiffs and promotion are rife, but they don’t seem to be getting any rifer.
        Indeed, Samsung have a setup and a mindset that need volume. I think they just need to accept that they can do premium, but not luxury.

      • Mark Jones

        I know it’s not Apple vs. Samsung, but both Apple and Samsung have to fend off mid/low end in those markets. Apple is willing to live with fewer units sold while preserving margins, while Samsung seemingly is not willing to do that.

        And for Samsung, it’s not about the list price on launch, but the actual prices at which the units are being sold. In the US, Samsung has continual BOGO sales, even within a month of launch. So everyone knows Samsung list prices are just for show.

      • obarthelemy

        Indeed, Samsung prices are not that steady, and they run promotions permanently. But I’m not seeing a rise of Samsung’s promos, neither value (70-100€ where I am), nor timing (2-4 weeks after launch), nor frequency (quasi all the time).
        Not sure about prices going down faster either (but not sure they aren’t either).
        I’ve been on the lookout for a price cut on their woefully overpriced 12.2″ Tab… They’ve just done it, but Lenovo just announced a 13″ one, so I’m… in a haze of indecision right now ^^ I need someone to come break my Note 10″ v1 so I can pull the trigger…

      • charly

        It is not margins that are a problem but units sold and profit per phone. Cheap(er) phones don’t have so much lower margins but lower profits.

      • charly

        It is not some of those markets but all (or most if there is a market Samsung doesn’t sell but Apple does). And a second problem is that Apple sells a lot more 4S 8GB, not even €300 phones in this kind of first world markets

      • StevenDrost

        That’s fair, Samsung’s has advantages with their integrated manufacturing capability and still run by far the best OEM business. But any competitor willing to forgo some margin can put out a similar(but not same) product. The OS/software ecosystem is the real basis of competition. Consumers are choosing between IOS and Android then whichever Android OEM has the best specs at the lowest price wins. It’s a sustainable business, but not a recipe for margins.
        KNOX and the S-Pen and multi-windowing are all valiant attempts to differentiate, but they have yet to put out a killer mass market software feature.

  • neutrino23

    I recall that in a 5×5 podcast from a few years ago Horace opined that Samsung might be the next phone company to fail (after BB) for just the reasons discussed here. They would be eaten from the bottom by Chinese upstarts (just as good as Samsung but cheaper) and they would fail to compete with Apple at the high end.

    Samsung has been spending something like 14B$ a year on advertising for phones. If profits fall they won’t be able to maintain that pace and with less advertising sales will fall even further. It is a vicious circle with no happy ending.

  • http://www.isophist.com/ Emilio Orione

    The strength of Samsung for every consumer product they make is fast following. They not create a leader product but they are very fast in copying it and very strong in marketing their version.
    They were first in copying Apple and they have had their reward, but today things are more difficult.
    Today Chinese upstarts are able to better blatantly copying Apple in low end and in high end Apple copying is much more difficult.

    Low end copying requires only a painting of hardware and software style, what Samsung did at the beginning with success for high end is now commoditized.
    High end copying requires duplication of features and high integrated services that only Apple seems able to deliver insofar.
    Samsung has gone is way to improve from galaxy 4 to galaxy 5 with poor results.
    Apple differentiation is at a new level and no high end competitor has been able to copy at this level.
    Some examples:
    – no 64 bit hw/sw like Apple’s, with high end android cpu performance still under iPhone 5s and way under iPhone 6 / 6+
    – no metal equivalent
    – no touch id implemented like Apple
    – no home kit, health kit etc…

    And apple pay and apple watch are coming…

    • hoggleboggle

      you, my good man, are seriously clueless:

      -“Apple differentiation is at a new level and no high end competitor has been able to copy at this level.” Come on, even you can’t really say that with a straight face?!? so apple copying HTC (the One M8 and iphone 6/+ are virtually identical on the back) and Sony is now a new level?

      -” no 64 bit hw/sw like Apple’s, with high end android cpu performance still under iPhone 5s and way under iPhone 6 / 6+” except even the year old Note 3 outperforms the latest iphones in everything but a meaningless browser benchmark and the latest Exynos chips Samsung are using are 64bit capable

      -” no metal equivalent” probably because Samsung prefer their phones not to bend?

      “no touch id implemented like Apple” well except for the fingerprint sensor Samsung use in conjunction with Ebay maybe?

      “no home kit, health kit etc..” what, like the healthsuite they had long before Apple? Or their integrated Smart Home system? Not to mention everything Google is doing.

      Admit it, Apple are the ones playing catchup with a rapidly progressing and maturing market and are forced to copy their competitors to try and stay relevant.

      • http://www.isophist.com/ Emilio Orione

        Exynos 64 bit are an exact demo of what I am saying.
        They are 64 bit but they are running at 32 bit because software does not support 64 bit mode.
        Samsung control hw but not software, copying Apple today requires integration of hw and sw, that Samsung has not.
        Exynos are Arm designed CPU running Google sw, Apple has custum designed CPU optimized for Apple software, you can match that quality only if you do the same.

        Metal is a graphic library allowing a frame rate in games that is almost double of what you get on all android models.
        Android models have similar or even better GPU than Apple sometimes, when they don’t use the inferior Mali GPU, and get similar hw benchmark, but the sw side is not at pair with Apple and real games get half frame rate.

        Having a kit and having third parties create products using it are completely different things. The ecosystem of accessories is different today and with the opening of iOS 8 the gap will increase.

        Touch id by Samsung is so shabby that I don’t think is even comparable.

        CPU performance have been widely benchmarked after iPhone 6 and the gap is wide even for iPhone 5s, see Anandtech and others.

      • GlennC777

        That is a truly amazing demonstration of a complete misunderstanding of the situation. I genuinely don’t know whether you really believe what you’re writing or whether you’re just saying things to say things.

        Everything you mention (except metal: do you know what Apple’s “Metal” is?) is a perfect example of how Apple has created technologies that are deeply integrated into the phone and into their platform in a way that, as Emilio was pointing out, Samsung is literally not capable of replicating, probably not even with Google’s help (and would be years behind in, if they tried).

        So the Samsung (et al), in doing what they can to compete, have ticked off a bunch of check boxes that look, superficially, competitive. A payments system that doesn’t have Apple’s deep security and that very few people will likely use, a hobbled 64-bit processor rushed to market rather than carefully integrated start-to-finish with the software and the other hardware, and so on and so on.

        These are all excellent examples (and there are others) of how Apple’s lead has actually been developing beneath the surface, deep within the foundational layers of their hardware and their OS, and is now beginning to show its strength in the form of actual features and design benefits that users can see and use. The “features,” with Apple, are the tip of a solid, meticulously constructed iceberg. Samsung’s iceberg is a styrofoam mockup, carefully staged and painted, floating pointlessly on the open sea and blowing whichever way the wind takes it.

      • charly

        Apple’s deep security *cough*

        Apple does not get security and probably never will

      • KirkBurgess

        Apple doesn’t get security? I guess that must be why American law enforcement agencies are complanning that the iPhone is to secure for them to break into now.

      • charly

        Apple is bad at implementing security. See for example your example. State security could just ask the key from Apple which they obviously have.

      • conspiracy

        Why would they have it? What’s the advantage? Thanks for writing a bunch of conspiracy theories throughout the comment section, though.

      • charly

        There are obvious reasons to believe they have the key i just fear that Apple doesn’t realise that they have the key

      • http://www.isophist.com/ Emilio Orione

        The entire statement of security agencies is hilarious.
        They first state that backdoors are not secure but after a while ask Apple to leave an accesso to the iPhone using a “golden key”.
        For those like charly, a “golden key” is a backdoor with a fashion name. Who does not like gold, a golden key must be a nice thing, but it isn’t.
        Apple does not and never will leave a backdoor (whatever name you like) in iOS since it is not secure and could damage its users.
        The security agencies themselves don’t want backdoors, they just want something like a backdoor with a different name!
        That’s not gonna happen.

      • charly

        Apple had the keys to any IOS device before the last IOS version. They literal had a backdoor key and where open about it so it did happen

      • http://www.isophist.com/ Emilio Orione

        No they didn’t have a “key”, before iOS 8 some data where not encrypted, now everything is.

      • Walt French

        Because Apple has made such a point about NOT holding a key, discovery that they are lying — a Snowden-type release by a disaffected insider, perhaps — would cause customers’ trust to disintegrate. Cook would be fired. Anybody close to the privacy issue would be, too.

        Perhaps they are merely grossly incompetent. We haven’t seen any evidence of such. There are exploits from time to time, and there have been ways that a brute-force attack on a single user’s iCloud account could be effected, but nothing dramatically worse than the best security practices today. Of course, there are a lot of reviews by the credit card, payments processors and banks that Apple Pay, for example, is extremely well thought-out, and all sorts of other security writers who welcome Apple’s approaches; they haven’t spotted weaknessees, and the list of potential weaknesses are short.

        So your claim becomes not healthy skepticism but a claim that Apple is lying through its teeth, risking the whole company for a marketing point that most users don’t worry much about.

        Per the Sagan Standard, “extraordinary claims require extraordinary evidence,” and you have made an extraordinary claim without ANY evidence.

        Since you haven’t identified any security chops in your past comments, perhaps you should admit that you’re simply trolling on this issue, and next time you’ll add something positive to the analyses.

      • charly

        There is a difference between being a great mechanic and knowing when somebody isn’t a good mechanic. But i already gave an example why Apple iss not good in security when they solved a security bug in ios without also solving it in OSX. Also good internal security is bad for external security. Apple is really good at internal secruity.

      • StevenDrost

        There are obvious reasons to believe they don’t. Mainly because Apple said so and they are actively trying to prevent it… But more because 50% of their customers are using an OS which was release only a month ago. NSA is good, but not that good. As big and well funded as they are, their resources and talent are dwarfed by Apple and Google.

      • KirkBurgess

        you are misinformed, almost hilariously so. There is no “magic key” – thats the entire point as to why security agencies and law enforcement is infuriated with Apple – because even Apple can’t decrypt the content.

      • http://www.isophist.com/ Emilio Orione

        If there is a great advantage of iOS over Android is security, not only the one embedded in the OS, for now iOS 8 is the only OS that maintains completely encrypted data even in RAM during use, but the one in the ecosystem.
        Apple is limiting the developers in order to have a curated store where each app is checked. That means for user that any purchase is secure and validated by apple. That’s one of the main reason iOS users are 10 time worthier of Android’s users and that virus and malware are 99% on android and 1% on others platforms.

        Furthermore Samsung has not any control on security, they have no store nor they develop the os. They have a layer over android that is skin thick and doesn’t follow os upgrades.

      • charly

        Samsung has KNOX.

      • Walt French

        Yes, we’ve heard of the brand — a great name, I think.

        What I haven’t heard is what all fits under that umbrella, how it protects both the individual users and corporate IT from malware using Samsung phones to steal information, credentials or actually engage in illicit transactions.

        Where is the story of what Knox does for people today?

    • charly

      So Apple doesn’t follow?

  • http://www.jlist.com Peter Payne

    In other words, no “moat” at all.

    As a Mac fan, an AAPL investor and a resident of Japan, it couldn’t happen to a nicer company. They ripped off the original iPhone as closely as they could, assuming rightly that doing so would yield benefits beyond what the penalties would be (a mere $1 billion), and were rude to Mac users in their advertising for years. Finally, Korean companies like Samsung and Hundai have a history of pretending to be Japanese companies when advertising in China or Europe, using images of Mt. Fuji to improve the image of their product quality. It’s high time this came back to bite them on the rear end.

    • charly

      South Korea is cooler (and higher tech) than Japan in the eye of an (South) East Asian so be happy that they want to be assiociated with Japan

      • http://www.jlist.com Peter Payne

        South Korea certainly has energy and power that Japan seems to lack. Perhaps it’s the amalgamation of everyone’s age in Japan, since most company presidents are in their 50s and 60s and are thus more conservative and slower to react, and there’s not nearly as much of an energetic startup culture.

  • sup sup dey

    Korean companies like Samsung will dominate because Koreans lead Asia in the world of technology, innovation, style and economic power. Samsung merely lowered their guidance to trick the market to lower their estimates. So when the Note 4 and Galaxy 5’s full results come in next quarter, the blow out record setting profits from these two products alone will make Apple, Google and other tech companies shudder with envy and jealousy. Now is an opportunity to invest in Samsung.

    • Walt French

      Of course, this was not at all true a couple of decades ago. Why will it be true a couple of decades into the future? How can you say there’s been a permanent change?

      Change happens, often for a reason that can be predicted. At least a couple of writers foresaw Samsung’s increased competition a year or two ago. I tweeted a snippet about it maybe 3 months ago.

      So, a bold forecast of recovery, unsupported by anything except the bald assertion that Samsung has lowballed its forecasts. Not really anything that you’d want to defend in front of a critical audience. Such as here.