Thursday, April 04, 2013

Samsung's Sweet Sixteen Ambitions. Samsung aims to ship 500 million handsets during 2013. That's 16 phones every second of the year.

Question of the day: Are Samsung's economies of scale becoming insurmountable to other vendors?


KEY MOBILE TRENDS: logistics, economies of scale, vertical integration

Already back in 2009, Samsung started chatting about becoming the world's largest handset vendor. Given Nokia's dominant position in the market at the time, it was easy to dismiss Samsung's talk as being slightly delusional. I know I did.

Back in 2008 Nokia reached a long-term goal of its own by claiming 40% share of the global handset market. For the full year 2008, Nokia shipped almost 470 million units. It was an amazing number and many within the company liked to talk about the amount of devices shipped per day (almost 1.3 million) and even per second (~15). It really was a logistical achievement.

So now Samsung is talking about shipping 500 million handsets during 2013 which would be a 25% increase from its 2012 volumes. This is in addition to its tablets and Windows & Chrome laptops.

Half a billion units per year would amount to almost 16 units per every second of the year. Most handsets have more than 100 components, some much more. But to be conservative, let's say that each handset is built with 120 components, from box to battery. This would require management of 1,900 components per second. How many companies could manage this?

No other handset vendor that I can think of enjoys the same level of vertical integration that Samsung does. Nonetheless, many components in each handset are sourced. Given its massive volumes, Samsung's leverage with suppliers --including platform vendors-- is reaching omnipotent levels allowing it to push deep and bargain hard. Samsung's influence and economies of scale are reaching levels that few companies in any hard industry have ever enjoyed.

Samsung has established itself as the power player in the handset industry. But as we've learned, power can fade quickly in this business. So, do other vendors have a second chance?

Putting the pieces in place.
Can other vendors chip away at Samsung's powerful logistical advantages?

image via Gadget tweet

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