Samsung

To close out last week's trading week, Samsung shares tanked, and everyone seemed to be talking about it. The short version:  Samsung stock dropped 6 percent, which means $12 billion of market value was wiped out in a single day. In case you were wondering, Samsung has a market value just under $200 billion. By comparison, Apple is worth $410 billion, Google is worth $290 billion and Microsoft is almost $300 billion. All of these market values make BlackBerry seem like a drop in the bucket given its market capitalization of $7 billion.

Why did Samsung drop? A few analysts downgraded the stock. The downgrades apparently were sparked by fears that Samsung is going after more market volume at lower margins. The evidence? A couple of stripped down models of the Galaxy S4 were announced. 

I think Samsung is doing a tremendous job of profiting from the global Android explosion. As much as people think Google must be unhappy with Samsung's dominance, I don’t think that’s the case. Google must love how quickly Samsung has helped to propel Android to dominance. We are in a new world of mobile computing, and Android has become the mobile equivalent of Microsoft Windows in terms of market dominance. To be clear, I’m not comparing the way Microsoft is run versus Google, or the quality of each company’s software. I’m speaking only about dominant market share. 

Google wants its OS in as many people’s hands as possible because it inevitably generates revenue (advertising, app sales commissions, media sales, etc). Gartner data from Q1 2013 shows that Google has succeeded, with almost 75 percent market share of the smartphone market. It’s also widely known that Samsung is the only player making any real money among Android vendors with their dominant share.

I remember looking at the PC market a few years ago. HP and Dell were the two major vendors and the market leader controlled about 20 percent of the unit volume. Of course in PC land people really didn’t care too much about the look and feel of the hardware. The tower went under a desk, and the keyboards and monitors were all pretty much the same. 

Compare this to the smartphone market, where Google (via Android) is the new Microsoft. People care about the look and feel of the hardware because they interact with the whole package. They hold the whole product in their hand. I think this provides mobile device vendors with a chance to build a more powerful brand, as Samsung has done. We also have to realize that each vendor tweaks Android to their liking, so there is some additional brand building capability in Android land versus the old world of PC land.

According to research from former Morgan Stanley analyst Mary Meeker, who is now a partner at VC firm KPCB, Samsung has gone from 4 percent smartphone share in 2010 to having 29 percent share in 2012.  What a move! 

Samsung is now in a position that no PC maker has ever been in.  It's grown to enjoy boatloads more market share than any other competitor. Samsung controls much of its own supply chain, and it has superb brand value among Android users. 

Can you blame Samsung for going after the mid range and low end of the market? I can’t. I think it's making the right decisions. Nobody else stands a chance of earning a reasonable gross margin when competing against the volume that Samsung brings to the table. If Samsung plays its cards right (and I think it is doing so), it will own cell phone market just as Nokia owned it in the 1990s. Except that now the OS is pretty standardized, and Samsung gets to rely on Google’s R&D and services for free.

The only other “news” that may have affected Samsung stock was the possibility of an Apple trade-in program. Does such a program from Apple hurt Samsung? I don’t think it makes much of a difference to Apple’s competitors. I think most customers behave by selecting the platform they want to be on and then choosing a phone. People who have joined the Apple camp are most likely to stick with it just as people who invest in Android through a Samsung Galaxy S4 or whatever other device they choose. 

The introduction of a trade-in program by Apple, if it is real, probably just improves the rate at which Apple customers will upgrade. It’s a good way to get customers to spend more money than they otherwise might. Sure, it may keep some would-be Apple defectors away from Samsung. But I doubt this is a significant factor.

I encourage you all to remember that technology stocks are volatile. The market leader usually attracts a premium valuation. As a result, when there is any sense of potential danger, market values tumble. Sometimes the tumble is a precursor to a real collapse. Sometimes it’s just unwarranted and emotional. Samsung has only been riding on top for a couple of years. I think they’ve got a lot more time to enjoy their spot and build a powerful moat around their business.

 

Reader comments

Stock Talk: Those analysts, they be finicky folk

32 Comments

No. Next will be movie reviews like those idiots on The Verge are doing...

Really....I don't want tech journalist doing movie reviews...

"Idiots on The Verge"...? Are you kidding me? You Josh and his team are awesome, and they put shit sites like Engadget to shame. AC is great, and I love this site too, but that's no reason to throw around claims like that around about a reputable tech site without some solid backing.

It's more like a "hint" than a "tip" but you can shave your neckbeard with a macbook Air.

The stock market is a pretty foolish way of tracking how well a company is doing. These sorts of cases highlight it. Samsung has never been healthier, yet their stock drops. Sheer lunacy.

That stat about Samsung's shift from 4% to 29% of the market is important to keep in mind. If Samsung doesn't continue to produce quality devices, or if other manufacturers step up their game (HTC has largely been lost and Motorola has been on 'cruise control' as far as high end devices go), then that number can shift again in a hurry. While there is some brand loyalty in hardware, the services and apps on one manufacturer's Android device are largely the same as on another. The sometimes hundreds of dollars in apps may keep people from shifting Apple to Android to BB and vice versa, but there is no such limitation between Android device manufacturers.

If I had the money, i'd be buying Motorola stock,it's nice and low to buy in bulk, when their hero device comes out at the end of the year after the summer mid range device, I think they will be in a new light.

This drop in stock happens at the same time as photos leak out showing the S4 Zoom. Coincidence? I think not...

:-P

Hey, I can RTFA, can you?!? If you RTFA about when the renders were leaked is was when? Friday June 7th, that's when. Now when did Samsung's stock tank? Friday, June 7th.

So now that we are talking about RTFA, how about you RTFC, see that little :-P at the end? Sarcasm Sheldon, get a clue!

The stock market is poor way to judge a company. Look at apple. They are selling more iPhones, iPads and macbooks than you can shake a stick at, but their stock has been dropping like the hindenberg.

Maybe in the long term you can get a sense about a company by looking at their market performance, but definitely not the short term.

Thats because they were hideously over valued to start with, but I agree the stock market is about as illogical as it gets. Its a law unto itself and makes little to no sense.

Amusingly late last year I had a twitter argument with an Apple fanboy about its value, I said it would settle to half its current value (then 700), he said it would hit 1100 by february. Who was right?? :)

If Apple doesn't release something majorly impressive Monday or anytime soon the tide will flow over and that will be that!

I think Samsung has released some remarkable products lately but the scale of usability needs be greater for more people to jump on board!

I am just going on feelings from what I been reading and hearing.

I love Samsung and their devices but do not own Samsung stock. I do own a lot of Apple and I hope APPL goes up this week after WWDC!, but not at the expense of Google which I also own. Gotta go with what puts food on the table! Samsung is entering into "Largecapitis" where emotions rather than logic dictates large swings in share price and market cap.

"Why did Samsung drop? A few analysts downgraded the stock. The downgrades apparently were sparked by fears that Samsung is going after more market volume at lower margins. The evidence? A couple of stripped down models of the Galaxy S4 were announced. "

And the stock market lemmings went "sell sell sell"

You forget how much money large buyers and hedge funds have tied up in Apple. They NEED Apple to do well. Pumping Apple like it's the limitless stock is business as usual for Wall Street. Irrational Exuberance is the name of the game, we have to keep the Dow above 15000 hell or high water.

Rumors are still abound over a lower-cost and lower-spec iphone. I guess we'll see if Apple stockholders take a hit also, but the same circumstance happened last year when the iphone 5 missed investor expectations too. Like the GS4, it didn't matter that Apple sold more iphone5's that week than any other in their history.

I call this a great opportunity to buy low on Samsung.

With the S4 Mini, S4 Active, and S4 Zoom coming out, I don't think it strange that Samsung will cut back on parts for the S4 in anticipation for the dilution of the demand due to the other models.

Well the S4 mini does suck. And they keep announcing a new galaxy device every other week.
It's starting to get like Blue Steel.

Three uses of the word "dominance" and one of the word "dominant" in the same paragraph? Somebody failed Comp 101.

Anyway, stock prices are not really tied to the value of a company. They are tied to what you predict other people will think the stock will be at any given moment. It's a higher-class form of gambling and that's why you can see absurd things happen like a company's value cut in half in one day.