Spaghetti Against the Wall

Friday, 6 January 2012

Jun Yang, reporting for Bloomberg on Samsung’s quarterly results:

Mobile-phone sales surpassed a record 300 million units last year as Galaxy smartphones helped win consumers amid competition with Apple Inc.’s iPhone.

So Jony Ive leads the design team at the two most-profitable phone makers. Impressive.

“The mobile business is generating a huge chunk of profit now,” James Song, a Seoul-based analyst at Daewoo Securities Co., said by telephone. “It may be getting harder for Apple to catch up because they only have a limited number of models.”

In what regard can Apple be considered behind Samsung, other than unit sales — a metric Apple has never shown interest in as a primary priority? Apple is after profit share, not unit share.

What proof is there that a multitude of models is more profitable? There seems to be plenty of proof — in the form of Apple’s financial results — that the opposite is true. With fewer models, combined with huge volume and a marketing strategy wherein Apple keeps selling and producing years-old models at lower price points, Apple achieves an economy of scale that none of its competitors can match. “Consumer electronics companies should offer a sprawling array of products” is just a bit of conventional wisdom flotsam. It’s a spaghetti-against-the wall approach: send it all out into the market and see what sticks. Many analysts — and, seemingly, most gadget company executives — cannot be disabused of this notion, evidence be damned. It’s an article of faith, a crutch for those with no product vision or taste.¹

While I’m at it, what’s up with Bloomberg’s headline: “Samsung Quarterly Profit Rises as Galaxy Phones Lure Consumers From Apple”? Samsung’s Galaxy phones are selling well? Fact. Those phones are profitable? Fact. Galaxy phone buyers are being “lured from Apple”? There is nothing in the article itself to support that, and it contradicts every customer loyalty survey I’ve seen. It’s fair to argue that if not for the existence of Samsung’s Galaxy phone, some percentage of those who did in fact buy a Galaxy last quarter might have instead bought an iPhone. Possible, yes, but again, I see no proof that Galaxy sales came at the iPhone’s expense, unless you start with the assumption that every single smartphone buyer is Apple’s to lose — which assumption is both unfair and unwise.

Now, Apple hasn’t announced its quarterly results yet. Maybe they’ll show a decline in units or profits from the iPhone. I wouldn’t bet on that, though. But you know who else has announced their results? HTC. And, guess what — they weren’t good:

HTC Corp., Asia’s second-largest smartphone maker, posted its first quarterly profit decline in two years as competing models from Apple Inc. and Samsung Electronics Co. damped demand for its handsets.

Seems to me HTC is who Samsung is luring customers from, not Apple. But what do I know? I just look at the evidence.