Have Korean cellphone makers underestimated the iPhone threat? [NYT, HT to reader]
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Chasing the iPhone
This entry was written by Robert Koehler, posted on July 3, 2007 at 10:12 am, filed under Asides, South Korea. Bookmark the permalink. Follow any comments here with the RSS feed for this post.
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41 Comments
Apple’s recent products are not about the numbers or specifications. Rather, they are about the UI and style. The iPod has one of the worst memory-to-price ratios on the market with the least features, yet it’s the most popular MP3 and personal video players out there, due solely to the wonderful user interfaces (both the iPod itself and iTunes).
The iPhone is following the same strategy and indeed will ride on the pre-installed base if iTunes users. I believe the success of the iPhone will largely be tied to the success of iTunes.
Just as Samsung underestimated the iPod, it has underestimated the iPhone. Yes, the Samsung equivalent will likely be technologically better in every way and cheaper to boot, but I doubt the Samsung engineers put in the effort to make it easy to use or have spent much time at all on the PC software.
As a side note, Samsung has some of the most painful and bug-prone PC driver software out there. I don’t know about LG, but I’m assuming their PC driver and other software is just as bad.
I promise that the Korean press will soon start running iPhone-is-junk stories — Apple is not bringing the iPhone because they know they can’t compete in “Korea’s tough, special market with savvy consumers”, or that Apple stole the idea from a Korean company (too late, already done this one!), or that because it’s a 2.5G GSM phone iPhone is somehow not as “advanced” as Korean phones and that’s why it will never work here. The level of Apple fear amongst the ranks of Korea Inc. is really quite striking.
IMHO iPhone got little future in Korea because text input is hard. You just can’t do 500wpm like koreas kids demand. ESP in winter. Btw I’m writing this on my fathers iPhone. Nice to be able to surf wifi on a phone, but this and sending SMS a chore.
Mr. Carr, they, the Korean news portals already started doing that since day one of launch of the iphone in the US. They hit one on your list already, too.
I have an ipod. I like everything about it except one thing. Changing the battery. And the rip off I-crap accesories. Wait a minute, the ipod was kind of overpriced to begin with, but I bought it anyway. Other than that, a pretty good product.
sometimes, I do wonder where apple would be today if the ipod didn’t take off.
(to add to what I wrote above)
On the other hand, what iPhone does with voice mail in the US is going to be a big hit, and hurt Korean phone makers’ exports unless they can do something similar or better.
Whenever I get a voice message in Korea it’s from a foreigner, and I have to keep myself from thinking the person is rude. I hate voice mail - you have to check to see who it’s from, then if the person rattles off a phone number or some sort of data you have to listen to it a few times, esp if you have noisy children, and you can’t check it in a meeting.
When I’m in the States hardly anyone leaves me text messages. It’s all voice mail, which is all the more frustrating because half the places I go in the States are no service areas, and even in big cities reception is often Third World quality, so you sometimes you get a voice message and can’t check it.
Anyway, in Korea it’s all about SMS, but Apple has figured out that Americans are going to go on using voice mail. iPhone apparently makes voice mail a lot easier to deal with, and for some consumers in the States that’s going to count for a lot.
Gentlemen:
The Iphone has already crashed:
http://machinist.salon.com/blo.....index.html
Reports of crashed phones have already started coming in.
But who cares about facts? Conspiracy theories about Korea Inc. are far more fun.
If you want a good chuckle, take a look back at all the Korean media articles and Korean mp3 manufacturers yawning over the Ipod and clamoring to get their interviews out stating how lame it was compared to Korean technology. The conventional wisdom in Korea was that the Ipod was too simple and didn’t have enough advanced features (radio, voice recording, dozens of useless file formats, etc) to appeal to consumers. Korean mp3 manufacturers loaded their players with every option under the sun, thinking that techno-geeks were going to be the primary target audience.
Now 100 million Ipod sales later, none of them are yawning. In fact, most of them are in the unemployment line or waiting for bankruptcy. Apple knew the techno-geek market is small, and aimed the Ipod toward your average housewife, or grandpa, or someone like my dad who never has and never will know shit about computers. Yet he owns and uses an Ipod. Korean mp3 makers spent all their time trying to outdo each other with complicated, clunky players, and underestimated Apple the entire way.
Korean manufacturers can’t stay in business by supplying only the domestic market because there’s so much competition and they cannibalize each other. So they need the US and European markets if they want to stay afloat. Now Apple owns those markets and a good 100+ Korean companies have gone under thanks to Steve Jobs and the “yawning” that went on while Apple’s simplicity and focus on ease of use destroyed an entire segment of the Korean economy.
I guarantee that any of them yawning over the Iphone now, are pissing their pants internally.
I was unfortunate to follow the hype and bought an 8gig Ipod Nano. This over-priced gadget sucks. In order to play songs from your MP3 folder, you have to create “playlists” through I-tunes first. Otherwise you have to go through all the songs in your Ipod which lists them in alphabetical order. Sure the touch sensitive pad is cool looking and the battery life is real good, but everything is simply not worth it’s price. I suspect the same for the i-phone. Who cares if it looks nice on the outside when the gadgetry inside sucks?
When it comes to Samsung, we can’t simply say Samsung underestimated iPod or iPhone. While Samsung (actually Samsung’s consumer electronics division) was the first company that developed MP3 player, which was not worldwidely successful, Samsung’s semiconductor division persuaded Apple to develop flash memory-based MP3 player (iPod Mini, Nano, Shuffle) and even said that flash-based iPod’s success is important to increase the flash memory market. Samsung is the major flash memory supplier of Apple, and the two companies reached an agreement on the flash memory joint venture (Apple dropped it because there was an investigation on the low price of Samsung’s flash memory). There was even a conspiracy theory that Samsung tried to kill smaller MP3 player manufacturers by helping Apple (I read an article long time ago reporting Samsung’s consumer electronics division whining about the semiconductor division helping Apple, which the semiconductor division didn’t care):
http://www.dt.co.kr/contents.h.....0151655001
The company also supplies parts such as CPU and flash memory for iPhone:
http://stream.ifixit.com/
While there was a rumor of the future “smaller” iPhone, current iPhone is a high-end mobile and IS a mobile computer. Only a small range of smart phone is likely to directly compete with iPhone.
#2
There had already been discussions on the similarity between iPhone and LG Prada phone in January:
http://www.engadgetmobile.com/.....-at-birth/
The iphone has already crashed?
Blueballs:
Not to put too fine a point on it, but its clear that you have no idea what you’re talking about.
You can’t see the big picture. Apple’s entry into the cellphone market should be read for what it is: a desperate attempt to keep its brand afloat. Apple’s share of the mp3 market has fallen to 79% from a high of 84% just over three years ago, and competition looks to get more intense with Microsoft’s entry of its Zune player into the market. Apple’s stock pretty much tracks with ipod news these days–If apple cannot keep growing its ipod brand, it’s dead.
Enter Samsung. Why did Apple feel the need to enter into a market in which it has no experience? Easy. It’s terrified of Nokia and Samsung. Phones are becoming slimmer and more memory intensive, with some advanced phones already possessing 1GB hardrives. Phones already play mp3, but if cheap phones with 2GB+ memory becomes the norm–which analysts estimate will happen within three years or less– then there is no need for anyone to even buy an mp3 player… .
Ipod’s only hope of survival is becoming a cellphone.
Oh yeah, and let’s not forget that the cellphone market is far more mature than was the mp3 market at the time of Apple’s entry. Apple is trying to enter the ring against established players, players who have far more chips at their disposal. One of these player is Samsung, and Samsung already has years of experience combining cellphones and mp3 players. Samsung will become a leader in the mp3 player market simply by maintaining competitiveness as a manufacturer of cellphones. Samsung is keeping a watchful eye over the young upstart; Apple should be terrified.
The bottomline here is that the ball is in Samsung’s court. Heck, Samsung owns part of the court. Smart money remains on Samsung at this point.
Didn’t you get the memo?
young, 500,000 units sold in the first weekend is nothing to sneeze at. Samsung isn’t concerned - not at all.
3G iPhone is coming to Europe (Steve Jobs said, in an article, the current iPhone uses 2.5G because the unpolished 3G radio chip drains battery too fast; limited 3G coverage in the U.S. is also a problem):
http://www.pocket-lint.co.uk/n.....ouse.phtml
Another article on the dissected iPhone with a video clip:
http://www.appleinsider.com/ar....._wins.html
Blueballs and Rocco
The big reason Samsung, LG and Nokia don’t have to worry about I-phone overrunning the cell phone market (like the i-Pod overran the mp3 player market) is that Apple has to go through cell phone carriers to get the i-Phone to the public. In the U.S., Apple has given a five year exclusive to Cingular which has about a 30% market share. Unless everyone is willing to switch their cell phone carrier to get an i-Phone, there will be a natural limit to how much market share gets taken away from the other cell phone manufacturers.
http://www.dailytechrag.com/st.....2007-05-23
Verizon, Sprint and the other carriers (billion dollar companies all) aren’t just going to sit around waiting for Cingular and i-Phone to grab 80% i-Podesque market share. They are going to aggresively market their music phones (Nokia, Samsung, etc.) and their own music download services. When Cingular’s exclusive runs out in 2012, who knows what music cell phone technology will be like. As Rocco mentioned, in the music cell phone market, Apple isn’t up against two-bit Korean manufacturers. The competition in cell phones are some pretty big-time companies: Nokia, Ericsson, Motorola plus Samsung and LG.
Plus if Verizon has it’s own music download site generating money by selling music, why would it want to sell an i-Phone to its subscribers since i-Phone users will go to I-tunes and Verizon will lose the revenue generated by these folks downloading music from the Verizon music site? Better to sell their subscribers a Samsung phone since there is no Samsung-Tunes.
Samsung and LG will lose some market share but it won’t share the same fate as Creative (which I think is actually a Singapore company)
Apple seems to be following the same strategy in Europe (supposedly in talks with Vodaphone) and I assume they will eventually do the same thing in Korea (so they will have to work through SKT or KT). Apple has never been good at partnering with our companies so it will be interesting to see how it all shakes out. It’s worth noting that Verizon turned down i-Phone when Apple offered to them. Interesting article below from the Wall Street Journal on how and why Cingular ended up with an exclusive on i-Phone. Apple (and Steve Jobs) really comes off as a company that can’t play nice with others. If Jobs treats reps from SKT or KT the same way he treated folks from Verizon and Cingular, I would not be surprised if the i-Phone never makes it to Korea (unless Apple wants to start up a cell phone carrier network in the Land of the Morning Calm).
http://online.wsj.com/public/a.....?mod=blogs
Oh jesus Rocco, you’ve got Korean Kool-Aid dripping all over your face, and it’s making you look like a fucking moron.
Answer me one simple question dumbass. When was the last time anyone, in any country, lined up for days or even hours for a fucking Samsung product?
Oh right, that would be NEVER.
Apple’s “desperate?” Right, it must have been that $770 million profit in Q2 of this year that has them shrieking in fright at Samsung. Like a sinking ship, they were only up 88% from last year, and that was before the Iphone even launched. Mac sales were up 36% and Ipods up 24% year on year. And 2nd quarters are generally the WORST of the year for them.
Look at Q1 for 2007, where they had $1 billion in profit. They have a 35% gross margin, and have 43% of total sales being international. Q1 had a 28% growth in Macs and 50% growth in Ipods year on year. Keep on looking through the last several years, and all you’ll see is an ocean of record-breaking profits and massive growth.
Dear god, you’re like Baghdad Bob standing in front of a battle scene screaming that there are no Americans in Iraq. Apple is a fucking juggernaut. They don’t give two shits about Samsung, because Apple has destroyed the mp3 competition, and is getting ready to do the same to the mobile phone market.
Wake up to reality, nitwit. The fact that you masturbate with a Taeguki has nothing to do with facts. And the facts are, Apple isn’t afraid of shit. Least of all Korean companies that they’ve already steamrolled.
Remove head from ass before venturing out of your hole next time.
http://www.nytimes.com/2007/04.....mp;ei=5070
When you’re sitting on the kind of profitability that Jobs is, you don’t need to play nice. You dictate terms and let everyone else come to you. That’s what we in the business world call leverage. Jobs has it, and he uses it. If he was posting net losses every quarter, you might have a point. But he’s throwing up profits that every CEO in the world envies.
Who the fuck cares if it ever makes it to Korea?
Me, for one. I am going to be one of the folks in line for the Korea CDMA iPhone. I could really use the portable browser.
#6 - All phones crash. That’s why mobile manufacturers have to spend time and money developing and releasing firmware updates even after the phone is launched.
But who cares about facts, right?
If impressed by the multitouch UI of iPhone, check these out:
Jeff Han’s Multitouch
http://blog.centopeia.com/2007.....h-demo-ii/
http://www.ted.com/index.php/talks/view/id/65
Microsoft’s Surface Computing
http://www.popularmechanics.co.....17348.html
Jeff Han is Korean-American. There is a bio of him available at Fast Company entitled “Can’t Touch This”. His Multitouch is definitely impressive. He’s founded a company called “Perceptive Pixel” which has as its homepage a slick video demonstrating the technology.
Opera Mini beta, Opera’s mobile phone version (beta), has been released. There is a demo clip:
http://www.operamini.com/beta/demo/
An article mentioning the cooperation of Apple and Samsung (the price of Samsung’s components is 30.5% of that (for example, US$265.83 is the component price of the 8GB iPhone) of iPhone components according to another article):
http://news.com.com/8301-10784_3-9739249-7.html
For what its worth folks, all the Korean concern has little to do with Apple’s style, UI, marketing, or whatever mojo you want to refer to (and keep in mind I am a pretty loyal Apple customer). The real problem here is market segments.
A few years ago Samsung in a bid to give more glamor to its brand stopped selling low cost handsets and focus on the high end. This was a bit of a strategic error since over the past few years sales of low cost handsets have boomed. They tried to recapture their momentum, but never recaptured their former success in the low cost area.
Now comes along the iPhone, which is clearly aimed at the mid-to-high market. This market is now Samsung’s bred and butter. A loss here (such as iPhones expected 11 million in sales the first year) can potentially do a good deal of damage to Samsung’s sales and brand value (Apple replacing it as the style and technological leader in the segment).
The technical discussions are secondary to me, but worth thinking of. Granted though the iPhone significantly raises the bar in what to expect from a phone (regardless of its ability to meet that bar). Personally I think the more fundamental change is the iPhone asks “what do people want” versus “what can we technologically provide”. The spiritual stuff aside, this translates into a driving force in todays product development, personalization.
What Apple has always excelled at is filling a niche. iPhone is no different. The challenge for the likes of Samsung, LG, Nokia, and Motorola is the potential the iPhone has to get consumers concerned about wanting a personal experince from their phone usage (rather than cosmetic personalization of, say, color, ring tone, or carry strap). Such a demand, if filled, will significantly raise the costs for these big makers because more product models have increasing costs to scale (the costs go up when the numbers go up). Further more it can also mean an increased series of flops and associated financial losses.
This is bigger threat for Samsung and further LG. Not a threat in an abstract sense, but a specific threat to their corporate culture. In my view, Korean companies have never done a good job a specialization. The drive is always to produce everything for everyone. The end result may be a good product, but far from an individualized product. If the handset market does go this way, the inability of Korean firms to specialize and personalize will be a serious problem long term.
To put a more practical face on this theory, take Samsung’s reaction to Motorola’s RAZR in the US. In the years before the RAZR the market, partly driven by Samsung, was for more. Phones were loaded with features, more memory, multi-megapixel cameras, colors, stereo, etc. The RAZR came to fill a personalized need, minimum space and weight. While Samsung eventually did respond, it took them over a year, a lifetime in the handset market.
#22
Only Apple has Steve Jobs. That’s the problem.
Blueballs:
Calm down. Breathe.
My criticism of your reasoning remains the same: you fail to see the big picture. Apple is doing well now, Apple has done well in the past, but none of that is important. Only the future counts.
Steve Jobs and his advisors took a look into the crystal ball and nearly crapped their pants. They know that the ipod is more or less the only thing keeping their brand afloat. They know that they have to maintain the high margins and 80% that makes Wall Street drool. They know that the very life of their company depends on the ipod.
But the ipod is already becoming irrelevant. Once cheap, high memory phones are introduced, no one will need to buy an ipod. The only viable solution Apple has is to enter the cellphone market.
And therein lies the rub. Apple is entering an extremely competitive and mature market in which it has little to no experience. Nokia, Samsung, and LG each manufacture and market dozens of handset models tailored to different market segments. Apple has only two models. In the cellphone market, distributors have alot of sway in deciding which features are included in a handset. Again, the established players have years of experience in negotiating with distributors. On the other hand, Apple has only successfully negotiated with one. The list goes on and on. Why enter such a market unless absolutely necessary?
“Desperate” is an accurate description of the attitude Apple must have if it hopes to compete against Samsung and the rest.
Blueballs:
I was reluctant to mention this fact earlier, because I had a bit of trouble finding sources to confirm it. However, I have found a source that confirms my suspiscions.
Blueballs…
Hate to break it to you, but Apple only has 5.0% market share in the home computer market:
http://www.twice.com/article/C.....?q=gartner
You vastly overestimated Apple’s prowess.
Please do your research before you speak.
One of the really awesome things about starting from a 4% market share is that a move to 5% — while possibly insignificant to the market as a whole — is excellent for Apple. It represents not a 1% improvement, but a 25% improvement in Apple’s Mac sales. Who doesn’t want 25% year-on-year growth? I know Dell would kill for it. Their sales were down 15% in the same period.
YoungDipshit2:
I was reluctant to mention this fact earlier, but I had no trouble finding sources to confirm it. However, I have found a source that confirms my suspicions.
Dipshit2…
Hate to break it to you, but I never said a word about Apple’s market share of the home computer market. I posted figures for Mac growth the last 2 quarters (28% in Q1 and 36% in Q2). I made no claims about market share. Do you know what growth means, dipshit? Look it up or ask your tutor to do it for you.
So I didn’t “vastly overestimate” Apple’s prowess, because I didn’t make any estimate of their market share of home computers at all.
Please do your research, stop beating off to Samsung commercials, and try not to look like a blind idiot.
While you’re trying to accomplish that, you may want to consider that Samsung has gross margins in the 5%-15% range, and Apple has gross margins in the 25%-50% range. In fact, the Iphone is estimated to have a 50% margin. Unlike crap-ass Samsung phones that they have to give away and no one will pay a premium for, the Iphone is sold for $500 and $600, and $250/$300 of that goes straight into Apple’s pocket. Tell me another cell phone maker who can sell 1 million phones in a week at a 50% margin? Oh that’s right, there are none.
Compare that with a Samsung doorstop which sells for $150, and nets Samsung about $15. Or sold to service providers at cost and then given away to consumers.
Apple is a Wall Street dream because they run high margins on EVERYTHING they sell. And they’re able to accomplish that with a high brand loyalty and consumer that will pay more for their products thanks to a stellar history and reputation.
Samsung meanwhile, runs very small margins and high volume, while competing with LG, Motorola, Nokia, Siemens…all for the same market pushing cheap phones with no distinction but low price. They have no brand loyalty and no premium on their products.
You mimicking the pathetic Korean media by predicting Apple’s downfall every year out of jealousy and envy just makes you look like a sad little flag-waving moron.
http://www.msnbc.msn.com/id/19614050
A certain poster on this thread just had to change his pantiesunderwear.
Hmmm, that didn’t come out right. I guess WordPress doesn’t recognize the del tag.
Since I don’t have a dog in this fight, I’m really starting to enjoy this back-and-forth with blueballs and rocco.
It’s getting kind of cruel. The ref should stop it before the kid gets hurt.
I’m with peninsular aborigine. This rocks. Can we get them a couple double espressos or something to charge them up for another round? Waiter!
“Simple” iPhone patent filed:
http://www.unwiredview.com/200.....r-grandma/
Multitouch coming to mouse and, according to a rumor, the trackpad of MacBook:
http://www.macnn.com/articles/.....se.patent/
http://crunchgear.com/2007/06/.....n-october/
Steve Jobs should be careful though… cuz he’s got right to no content:
http://tinyurl.com/2r6veq
Blueballs:
A kid is walking down the street with a dollar in his pocket. All of a sudden, he sees a 20 dollar bill on the street. Woah! This kid’s profit margins are 2000%! This kid’s quarterly earnings growth beat the entire S&P!
I guess you’d let this kid run a hedge fund.
Blueballs, what you’re doing is foolish. Its foolish to focus solely on profit margins as a measure of a company’s future prospects. A smart analyst must also take into account a company’s ability to sustain its revenue stream. An asbestos company, no matter its margins, does not have bright future prospects. A typewriter company, even with 100% profit margins, is not likely to attract the cream of the management crop. These are, of course, extreme examples, but they illustrate my point: Future prospects are an essential factor to consider when analyzing a company’s future.
How does this apply to Apple? Well, as I’ve already stated, Apple’s future prospects are currently not too bright. They hold a meagre percentage of the PC Market. They’re main revenue stream, the Ipod, is under threat not only by other MP3 players, but mobile computers and cellphones. In five years or less, the mp3 market will have been completely canniblized by convergence devices. Apple has no choice but to diversify into other devices like cellphones.
Unfortunately, its heading into deadly territory…
More later.
That last post is enough to make me want to buy as much Apple stock as I can.
http://www.msnbc.msn.com/id/19614050
Oh dear. It seems investors and professional analysts don’t seem to agree with Rocco comparing Apple to a company that just “found” billions in profits in the last several years. Apparently, they actually developed products and then sold them to consumers to earn their billions, and didn’t “find” anything. Fancy that asshat!
Christ, this is akin to arguing with my toejam, except at least my toejam makes a good point every once in a while.
This is sarcasm right? Oh god no, one Iphone broke down and some dude wrote about it! Sell your Apple stock and stop the European launch, it’s a fucking failure!
Steve Jobs must be shitting his pants over that potential $500 in lost revenue if that guy returns his Iphone. I sure hope that other $699 million and change this quarter can soothe his pain.
Wait. You mean the iphone isn’t like a kid with a buck in his pocket finding a sawbuck on the ground? This is starting to get too technical for me.
And Samsung is laughing all the way to the bank.
“It seems investors and professional analysts don’t seem to agree with Rocco comparing Apple to a company that just “found” billions in profits in the last several years.”
–blueballs
Cute, blueballs, but lame as always. I guess the word “analogy” isn’t in your dictionary.
You’ll notice that I provided three analogies in my post. The first analogy related to how short term success does not a bright future make. The other two analogies related to how products can become obsolete, regardless of quarterly profits.
I am going to repeat my points in the clearest possible language so that you can understand:
A. Problem
1. Apple’s principal source of revenue is the ipod mp3 player.
2. The Apple’s share of the mp3 market is under threat by market saturation, and increased competition.
3. The mp3 market itself is under threat from convergence technologies.
4. In less than five years, people will no longer buy devices that just play mp3 or video. Instead people will buy phones that play mp3 and video.
5. This means that Apple, if it is to keep momentum and remain relevant, must not only enter the cellphone market, but dominate it.
B. Apple is unlikely to dominate the cellphone market.
1. Apple mostly sold ipods to first time buyers of mp3 players. The cellphone market has very few first time buyers.
2. Apple enterted the mp3 market when the mp3 market was at a nascent stage, the cellphone market is already quite mature and highly competitive. Furthermore, there are already many players in the market.
3. Apple has little experience in the industry.
4. The Iphone is not the most sophisticated smartphone in the market.
5. The iphone is very expensive.
6. Apple’s goal for the year is 10 million Iphones sold. Even if Apple meets this goal, it will still only possess 1% of the market. Samsung controls over 12% of the market.
7. Most of the growth in cellphone usage is on the low end(cheap) of the market, not the high end.
8. The iphone will cannibalize sales of the ipod.
Bottomline: Apple is unlikely to dominate the cellphone market. Which means that it you’ll start seeing a slip in revenues soon enough.
This is a problem for Apple. Apple will have to compete against tough competition while simultaneously seeing its bread and butter market canniblized by cellphones.
Stock prices rise and fall, but intelligent analysts look at the big picture. High stock prices do not a bright future make. I hope you didn’t buy stock in pets.com in 1999 like dogbert and aborigine did!
Do you get it now? If not, don’t worry. I’ll explain it to you as many times as necessary until you get it right. I’ll be with you every step of the way on your learning process.
The iPhone, iPod, and (with some wrangling) AppleTV are all just as good with pirated material as with legit stuff purchased from the iTunes Store.
Sez you. Samsung’s margins are thin: They have to churn much more product, and therefore take much more risk, in order to earn the same buck as Apple. Samsung reports its Q2 results on Friday. Let’s see who’s laughing then.