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At Galaxy unveiling, Samsung will have insurance plan in back pocket – Reuters


Wed Mar 13, 2013 4:07am EDT

* Backup plan aims to avoid repeat of last year’s costly
supply disruption

* Analysts warn Samsung may have raised consumer
expectations too high

* Stakes for Samsung high on product that delivers its
biggest profits

By Miyoung Kim

SEOUL, March 13 (Reuters) – The success of Samsung
Electronics Co’s latest Galaxy phone, set to be
launched in New York on Thursday, could hinge on a supply backup
plan aimed at preventing a repeat of a costly snag for its
premium smartphone last year.

Some analysts predict the new Galaxy S IV could top 10
million unit sales in the first month after its launch, so any
hiccups in the smooth delivery of core components could be

The risks are high. A simple manufacturing snafu involving
unsatisfactory design of handset cases cost Samsung some 2
million units of lost sales in just a month after it launched
the S III in May last year.

“There could be, again, a supply bottleneck due to tight
supply of components… but I think any such disruption will be
very brief, as Samsung is making a bigger bet on the S IV than
on its predecessor with a backup plan to avoid such disruption,”
said Greg Noh, an analyst at HMC Investment and Securities.

After pre-empting its launch with a marketing blitz for the
new Galaxy phone, the South Korean electronics giant also risks
having overhyped its new phone, analysts warn. They say
consumers could be disappointed if it has only incremental
improvements rather than the dazzling features they’ve come to

Samsung picked the United States for the launch of its
top-selling Galaxy series, hoping to regain its lead in the
crucial U.S. market. Apple Inc outsold Samsung there
for the first time in the quarter ending in December, even after
Samsung spent a record $400 million on phone advertisements
there last year.

The stakes are especially high for Samsung, which derives
the majority of its annual profits from the product, while
growth rates for the global smartphone market taper off.

J.K. Shin, head of Samsung’s mobile business and a newly
elected board member, will skip his first Samsung shareholders
meeting on Friday in Seoul in order to attend the Galaxy launch
at the Radio City Music Hall.

“It’s got to be a blockbuster phone that beats its
predecessor and competitors in nearly all aspects, otherwise
Samsung could follow the footsteps of others and fail to manage
expectations, which get only higher,” said David Choi, an
analyst at SK Securities.

Samsung executives declined to comment on steps they’ve
taken to ensure supplies keep flowing, but some analysts said a
disruption of any component part could potentially cascade,
interrupting deliveries.

“Based on checks we had with suppliers, Samsung has already
done significant work to ensure smooth supply and not to repeat
what they had to deal with last time,” said Lee Seung-woo, an
analyst at IBK Securities.

“For now it appears there’s no major issue at all, but
obviously we have to wait and see how smoothly it goes after the

Of particular concern are eight-core processor chips and
screens, or even simple handset cases.

“Handset cases again appear to be in tight supply, and
Samsung may use two different processors to maximise battery
efficiency through the right combination of chips for different
network conditions to yield the best performance,” Noh said.


The new Galaxy phone is widely expected to boast crisp, full
high-definition quality pictures, a slightly bigger 5-inch
screen, a 13 mega-pixel rear camera, and an improved eight-core

Earlier media reports had also suggested the new Galaxy,
which uses Google’s free Android software, may have
functions that track the viewer’s eye movement, and boast an
unbreakable or flexible screen.

Whether that will be enough to excite consumers is
debatable, analysts say. Samsung declined to comment.

“With so many great things speculated about the S IV, it
could actually disappoint in terms of wow factors,” said Choi at
SK Securities. “If you see Samsung’s share price, which hasn’t
moved much of late, I think you can get a more cool-headed
assessment of what’s coming.”

Shares of Samsung, which has a $220 billion market value,
have fallen 1 percent so far this year, while Apple shares
tumbled nearly 20 percent as disappointing sales of iPhones
raised fears that its dominance may be slipping.

“It’s about the buzz they can generate around the product,”
said Ben Wood, an analyst at mobile consulting firm CCS Insight.

Samsung has developed a cheeky TV ad that mocks Apple
customers, and dramatically ramped up spending on marketing and
advertising, a cornerstone of Apple’s success.

“It’s not afraid to carpet bomb the world with marketing
efforts to make sure nobody on the planet misses out on the
story of the Galaxy IV,” Wood said.


Such bravado underscores how far Samsung has come since its
first Galaxy, which debuted in June 2010 in answer to the
runaway success of the iPhone. That propelled Samsung to become
the world’s top smartphone maker, vexing Apple which virtually
created the smartphone market with its first iPhone in 2007.

The touchscreen-based look and feel of the Galaxy also
prompted Apple to file global patent disputes against the South
Korean firm.

In 2012, Samsung surpassed Apple as the world’s largest
maker of smartphones, controlling 30 percent of the market
versus Apple’s 19 percent. But in the high-end market, sales of
Samsung’s Galaxy S and Note still lag far behind Apple’s iPhone,
the best-selling smartphone globally.

As overall market growth slows, however, it is also becoming
more competitive. Rivals such as LG Electronics Inc
and Huawei Technologies have announced products with
features and hardware comparable to those the upcoming Galaxy
will reportedly have.

“I’m expecting them to come out with some new features they
can hang their hat on,” said Avi Greengart, an analyst at
Current Analysis, referring to the Galaxy launch.

“As long as the Galaxy S IV doesn’t regress and as long as
it’s competitive with the flagship phones from other phone
manufacturers, I give it really good chances of winning consumer
sales even if it isn’t different for the sake of being

At Galaxy unveiling, Samsung will have insurance plan in back pocket – Reuters

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