Study of Vertical Integration for Apple and Samsung in Smartphone Industry Submitted To: Prof. M. Akbar
Submitted By: (Group – 3, Section-B !MP"#"$# Ab%ay Ab%ay &i' !MP"#") A*ok Mi+%ra Mi+%ra !MP"#"" Arun r S%arma S%arma !MP"#"# Gaura Gaura B%ati !MP"#"# Prateek Prateek /ai0ada /ai0ada !MP"#1"# S%2eta S%2eta /a+to'i
Agenda &ertica*
nte'ration nte'ration Smartp%one-ndu+try Smartp%one-ndu+try Ana*y+i+ Sam+un' App*e 4ompetitie Adanta'e – App*e &+ Sam+un' 5i+torica* 6inancia* Ana*y+i+ Scenario Ba+ed 6inancia* Pro7ection
Vertical Integration 6irm+
c%oo+e
to
ertica**y
inte'rate
to
ac%iee
tran+action co+t economie+ To
minimi0e +eera* ri+k+ ino*ed in tran+actin' 2it% many
partie+. T%e+e ri+k+ inc*ude 8ifficu*tie+
in enforcin' contract+ 2it% many different partie+
4%a**en'e+
of en+urin' t%e 9ua*ity of ra2 materia*+, component
part+ andor +erice reac% t%e re9uired *ee* of +tandard+ /i+k+
of a+ymmetric information and opportuni+tic be%aior
aimed a'ain+t t%e firm. Sca*e
and +cope economie+
Vertical Integration 6or2ard
; Aimin' to2ard+ fini+%ed fini+%ed product+ or to2ard+
Smartphone Brand
- design, manufacturing and distribution Hardware including features such as Camera, RAM, ROM, Design etc. Target Target rou! " a#ecting a#ecting !ricing and ad$ertising %oftware %oftware " design, manufacturing and distribution %u!!orting a!!lications Add on O!tions " !rinters, card readers readers
Smart Phone Industry Analysis T%reat of @e2
• • •
Bar'ainin' Po2er of Supp*ier+ (=o2 for App*e > Sam+un' •
•
5i'% capita* re9uirement for operation+. 5i'% />8 4o+t to +tay competitie Strict Patent+ @eed to e+tab*i+% a competitie brand
Bar'ainin' Po2er of Buyer+ (5i'%
nterna* /ia*ry (5i'% •
Sam+un' i+ it+ o2n +upp*ier for mo+t component+ > ra2 materia*+ App*e i+ a*+o moin' to2ard+ c%ip de+i'nin' to reduce po2er of +upp*ier+
4oncentrated ndu+try "3 *ar'e+t p*ayer+ make up )) market +%are.
T%reat of Sub+titute Product+ (5i'% •
•
•
Any +martp%one t%at perform+ t%e +ame function+ i+ con+idered to be a +ub+titute 6unctiona*ity of i?S, Android or !indo2+ p%one i+ a*mo+t a*mo+t +ame. +ame. ?ut+ide of ndu+try t%reat of +ub+titute+ i+ *o2. <.'. Tab*et+, =aptop+
•
•
Buyer+ benefit from %i'% indu+try competition Acce++ to market market information information
Industry Dominance Smartp%one+: =eadin' 4ompanie+ by &o*ume S%are "1"-"13 G*oba* Brand ?2ner (GB?
) year "1 "1 "1 "1 trend " 1 3
12
19 28
31
1
1
1
1$
=enoo Group =td
"
3
)
@okia 4orp
$
1
)
=G 4orp
)
)
)
Sony 4orp
3
3
)
5ua2ei Tec%no*o'ie+ 4o =td
1
3
)
1
1
3
Samsung Corp App*e nc
Cu*on' 4omputer 4ommunication Tec%no*o'y (S%en0%en 4o =td
Samsung
Samsung Electronics D 6*a'+%ip company of Sam+un' Group D 4ontribute+ " reenue+ of Group D 1#$ Sub+idiarie+ 2or*d-2ide
Consumer Electronics
D 3 companie+ for makin' component+ for it+ +ub+idiarie+ D Manufacturin' of 5ome app*iance+
n-5ome 4on+umer <*ectronic+
Portab*e 4on+umer <*ectronic+
; (T&, /6., !. Mac%ine+, Mobi*e P%one+
D Bi''e+t Manufacturer of Memory 4%ip+ and Semiconductor+ D 3 Ma7or 8ii+ion+ ; Mobi*e 8ii+ion ; 4on+umer <*ectronic+ 8ii+ion ; Semiconductor+ 8ii+ion
8i'ita* T&+
!earab*e <*ectronic+
Smartp%one+
Samsung Mobile Division Evolution
F*timatum – Produce mobi*e p%one+ comparab*e to 1##3-# Motoro*a
Ga*aHy S =aunc%ed "1- !or*dI+ *ar'e+t ce**p%one maker "1" 1##E
A Humble Beginning
Anroi Era Go Global
New Management
1#E3-#3
6uture !i"en !i"en
6ocu+ on 4omponent Manufacturin'
Mobi*e 8ii+ion Started 1#EE – 6ir+t Mobi*e *aunc%ed - =o2 9ua*ity perception
Samsung Mobile Phone Supply Chain
(Source: In the Belly of the Beast: Samsung Electronics’ Supply Chain and Workforce in South Korea, i!on i!on "an, Wol#san Wol#san $iem, and %oomi $ee&
Components in Flagship Smart Phone S! Samsung Gala#$ S% Components &unction
Manufacturer
Accelerometer ' G$ro
nen+en+e
Application (rocessor (rocessor
Sam+un'
Auio C)*EC
4irru+ =o'ic
Baseban (rocessor
Sam+un'
En+elope (ower !rac,er
Sam+un'
Heart -ate Sensor
MaHim
.mage (rocessor
Sam+un'
N&C Controller
Sam+un'
(ower Management1
Sam+un'
(ower Management2
Sam+un'
(owerManagement3
Sam+un'
(ressure Sensor
STMicro
-AM
Sam+un'
-& !ranscei+er
Sam+un'
-)M
Sam+un'
!ouc/screen Controller
STMicro
0i&i ' Bluetoot/
Sam+un'
Vertical Ve rtical Integration A Strength of Samsung Samsun g D ne+t+ %eai*y in it+ o2n factorie+ D Manufacture+ key component+ ; =ar'e+ =ar'e+tt memory memory manufa manufacture cturerr and and =48 di+p* di+p*ay ay manuf manufactur acturer er
D 4an make a** t%e ma7or component+ of a p%one c%eaper and t%en bund*e and +e** t%o+e component+ to a p%one endor
Competitive Advantage
&n-house DRAM
'A'D (lash
Dis!la)s including *CD, AMO*+D
Maor %hare in com!an) manufacturing O*+D dis!la) for Mobile handset
Cost +cienc)
Assured su!!l) for critical com!onents
Technological Technological &nno$ation Di#erentiation
Samsung" As a Component Supplier Samsungs largest clients 1 24145 -an,'compan$ Part de+cription 8/AM, @A@8 f*a+%, =48 pane*+, etc 1 Son$ AP (mobi*e proce++or, proce++or, 8/AM, @A@8 f*a+%, f*a+%, etc 2 Apple .nc6 8/AM, f*at-pane*+, *it%ium-ion batterie+, etc 3 *ell 7 Hewlett 8/AM, f*at-pane*+, *it%ium-ion batterie+, etc (ac,ar :eri"on Communication s % A!;! .nc6
of tota* +a*e+ 3. . .$ .
5and+et+, etc
1 .3
5and+et+, etc
1 .3
Ma7or +upp*ier to it+ /ia*+ +uc% a+ a + App*e •
•
•
Supp*ie+ =48 Pane*+ to ot%er T& manufacturer+ Primary p%one component manufacturer of App*e 3 of Sam+un'I+ tota* +a*e+ 'o to App*e
Performance
Advantages of VI to Samsung D Newer !ec/nolog$ at &aster -ate ; ?2n+ and contro*+ re+earc%, component +upp*ie+, manufacturin' ; 8eice+ e9uipped 2it% fa+ter /AM, eHtra +tora'e, AM?=<8 +creen+
D
D A priori Component Supplies ; Mo+t of t%e co+t of Smart P%one manufacturin' 'oe+ back in to t%eir component manufacturin' dii+ion ; ncrea+in' t%eir oera** reenue ; n turn 'oe+ back in to re+earc% fundin' ; Prioriti0e +upp*ie+ to Sam+un' by %o*din' off ot%er+.
Concern " #uge Dependence on Android D 5u'e /e*iance on Goo'*e for Android ?S D A+ of Au'u+t "1$, Sam+un' %ae a 3.E +%are of t%e Android market, 2%ic% i+ 9uite %u'e.
Vertically Ve rtically Integrate to t o $S " %i&en
Continued e#orts to de$elo! its own O% to reduce its reliance on Android O% O$er the )ears it has been in$ol$ed in the de$elo!ment de$elo!ment of Bada, %*, and Ti/en latforms.
Apple
Apple
4ompanyI+ main product *ine+: computer+ and portab*e con+umer e*ectronic+, +oft2are, c*oud +erice+ and retai*in'.
Succe++ can be attributed to +oft2are and +erice product+ +uc% a+ iTune+ t%at comp*ement App*e ncI+ %ard2are *ine, creatin' an indu+try-*eadin' content con+umption p*atform for mobi*e deice+.
Premium pricin' of it+ product+
Fnaffordab*e for main+tream con+umer+ in many emer'in' market+.
Apple 5ard2are T%ou'%
not produced 2it%in, it+ product are S*im, er'onomic, u+er-friend*y and t%ey tend to %ae a price premium oer ot%er competin' product+. emp%a+i0e +imp*icity in t%e operation and minima*i+t de+i'n, a*on' 2it% ot%er key performance feature+ a+ battery *ife, *ife, 'rap%ic+ 'rap%ic+ etc. Soft2are i?S mobi*e operatin' +y+tem – ariou+ media con+umption and t%ird party app*ication+. t+ primary content offerin'+ are t%e core of it+ de*iery p*atform. !ide +e*ection +e*ection of +oft2are - n "13, t%ere 2ere +iH mi**ion dee*oper+ in App*eI+ dee*oper+ community,
Apple nte'rated
eco+y+tem of it+ product+ and +erice+ + erice+
unmatc%ed
*ine-up of t%e media con+umption deice+ and
a++ociated +erice+ Adanta'e t
*ock+ con+umer+ 2it%in t%e eco+y+tem, makin' +2itc%in'
bet2een p*atform+ +ome2%at difficu*t. T%i+ a*on' 2it% t%e +ma** number of a*ternatie+ %a+ made it+ u+er+ *oya*.
Vertical Ve rtical Integrati Integration on %r %rends Among Industry Indus try 'eaders ' eaders D App*e nc.
boa+t+ one of t%e mo+t er+ati*e ertica* inte'ration +trate'ie+ in t%e +martp%one indu+try. D App*e nc., i+ ertica**y inte'rated becau+e it i+ e++entia**y four companie+ in one, t%ereby contro**in' Ja** t%e ma7or critica* part+ of t%e c%ain u+ed to make and +e** product+.K (a t i+ a %ard2are company (it de+i'n+ it+ o2n %ard2are, (b a +oft2are company (it o2n+, dee*op+ and optimi0e+ it+ +oft2are, (c a +erice+ company (it e9uip+ it+ product+ 2it% +erice+ +uc% a+ t%e iTune+ and i4*oud and (d a retai* company (it proide+ con+umer+ 2it% a uni9ue retai* eHperience Apple vertically integrated specialized
Apple Inc( A!!le
outsources the manufacturing of all the !roducts, and !urchases other 0e) com!onents from third !arties. &t has to rel) on e1ternal su!!liers for manufacturing and assembling. 2& e1!lained through " O!erating
%)stem 3ro!rietar) 3ro!rietar) iO%4, numerous numerous a!!lication su!!orting the O!erating s)stem 3iTunes 3iTunes 5 iCloud4, A!!le
Online Retail %tore for most of the !roducts remium !ricing of its !roducts 'ot able to !enetrate mass segment
i$S Mar)et Share
Apple Competitive Advantage &ntegrated
Hardware %oftware A!!roach
%oftware Content %er$ices
!ro$ided A!!lications " !roduct s!eci6c
Drivers of Apple’s VI D Scale an Scope Economies = Since t%e out+ide +upp*ier+ are +upp*yin' ma7ority of t%eir producer+ to App*e nc. on*y %ence t%eir abi*ity to take adanta'e of economie+ of +ca*e and +cope by a''re'atin' t%e demand i+ ery *e++. 5ence App*e 'ain+ 'ain + maHimum from &ertica* & ertica* nte'ration. D Asset Speci>icit$ - A+ App*e nc. i+ u+in' +ame +oft2are and di+tribution +y+tem and a*+o +ame +upp*ier+ for it+ %ard2are %ence itI+ A++et +pecificity i+ ery %i'%. T%erefore App*e nc. 2i** benefit maHimum from &ertica* nte'ration. D T%e A++et Specificity of App*e nc. %a+ reac%ed to t%at *ee* 2%ere tran+action co+t+ of market eHc%an'e+ are +o *ar'e t%at &ertica* nte'ration i+ more a'ency efficient t%an market eHc%an'e+. D (rouct mar,et scale an growt/ – A+ App*e nc. contro* a *ar'e c%unk of t%e computer and mobi*e market %ence it 2i** %ae maHimum adanta'e from &ertica* nte'ration.
Financial Analysis
Financials
5i+torica* 6inancia* Ana*y+i+ Scenario Ba+ed Pro7ection+ (
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