SWOT Analysis of Samsung Electronics

Primary Strengths of Samsung:

Brand Image:

Brand image is a significant strength for the players in the smartphones and consumer electronics industry. Samsung has managed to build a strong image in the global market. It is among the largest smartphone brands in the world. However, its popularity and market position are a result of the company’s intense focus on product quality and technological innovation. Apart from the great performance, Samsung products including smartphones and other electronics products are known for their great design and overall quality. To grow its customer base and attract more and more new users, the company invests in marketing as well as research and development. Product quality is at the core of demand in this highly competitive industry scenario. The company has always strived to provide its customers with the best in class products. It is why Samsung is counted among the most reliable brands of electronics and smartphones. Samsung has also leveraged the strength of marketing to grow its sales and popularity level in the global market.

Brand image has become an important factor affecting the demand and sales of products in this era. It is mainly because customers like to shop from the brands that they know and like. It is why companies have to maintain a heavy focus on their image among the public. Samsung has also grown its focus on sustainability and CSR to maintain a clean social image. While there are several factors that are key to maintaining a strong reputation for the company, some of them are management, product quality, innovation, and customer experience. Samsung has maintained the image of an innovative brand that delivers superior quality products. However, it is essential that Samsung maintains its image if it wants to retain its growth momentum.

Market position:

Samsung is mainly a brand of smartphones and consumer electronics. It has maintained its lead as the market of smartphones as well as TV appliances. The company gained the top spot in the global market for televisions in 2006 and since then it has continued to retain its position at the top. The credit of its leadership status as a television brand goes mainly to its focus on innovation. The company is ahead of the other brands in this segment and has brought a large range of innovations to the world of televisions including ‘The Wall’ which has brought large screen viewing to homes and offices. However, that was about televisions. Samsung continues to remain the largest brand of smartphones globally with the highest number of shipments worldwide.

Samsung was the largest vendor of smartphones in 2019 with Huawei following in the second position. The South Korean company held a market share of around 22% in the smartphone industry in 2019. Throughout the year, it sold more than 290 million smartphone units worldwide. However, Samsung’s dominance is not limited just to the smartphone or television market but instead, the company also holds a strong position in the tablet as well as semiconductors and displays industry. The Galaxy Tab made by Samsung competes against the Apple iPad. In 2019, with around 7 million shipments alone in the fourth quarter, Samsung was the second-largest tablet vendor in the world. Apart from that, the company is also the largest seller of NAND flash memory where it held a market share of more than 31% during the second quarter of 2020. Samsung is also enjoying a strong position in the global semiconductor market.

Research and Development:

The smartphone and consumer electronics industries are marked by heavy competition. To survive and maintain its position in a highly competitive scenario, every player has to make a huge investment in research and development. Innovation is the key to winning in the technology market and Samsung has brought a large range of products including smartphones, tablets, televisions as well as semiconductors and memory products. However, whether the smartphone, tablet, or television industry, in each of these, innovation is the key to survival. Otherwise, players like Apple that have a huge cash reserve, strong technological capabilities as well as knowhow, and an excellent marketing strategy can easily outwit their competitors. In 2019, Samsung spent more than 20 Trillion KRW (around 16.8 billion USD) on research and innovation.

While the company is one of the top spenders on research and development in the entire industry, its focus on innovation also proves its dedication to quality. If the Galaxy range of smartphones and tablets is ruling the market, it is mainly because Samsung is a highly innovative brand. Technological innovation is not just a part of Samsung’s business strategy but also a part of its organizational culture. There is an intense rivalry for market share in the smartphone industry. Not just Samsung, but the other players in the global market including Apple, Huawei, Xiaomi, and several more that include both big and small players are also focusing heavily on innovation. These players can snatch market share away from Samsung unless the brand maintains its focus on innovation. Samsung’s position against the Chinese brands would have been difficult in India if the brand was not dedicated to fast-paced innovation.

Moreover, the companies that cannot invest as much in innovation cannot withstand the competitive pressure. It is pretty much evident in the shrinking market share of the smaller brands. Compared to the market share held by the top ten brands, the smaller players have continued to lose market share and experienced a decline of as much as 55% during the second quarter of 2020. The pandemic has put the innovative capabilities of the smartphone companies to test. However, apart from product innovation, these companies also need to focus upon process innovation so that they can keep their supply chains and distribution networks from failing and falling apart.

Strong position in the US Market:

While Samsung is a global leader in smartphones, its most critical leverage is its position in the United States market. In the US smartphone market, Samsung is behind Apple and holds the position of the second-largest smartphone brand. Based on the stats released by counterpoint research for the first two quarters of 2020, the market share of Samsung smartphones was 32% and 25% respectively during the two quarters. Apple’s market share remained 46% for the first quarters of 2020 in the smartphone segment.

However, according to sources, the company holds the lion’s share in the 5G smartphone market in the United States and globally. Its market share in the global 5G smartphone market was 34.4% in the first quarter. On the other hand, during the same period, it held a market share of nearly 94% in the United States 5G smartphone market. Across its other product categories too including televisions, the company holds a leadership position in the United States market.

Global Leader in televisions and LCD Displays:

In March 2020, Samsung shared an infographic looking back at how the company has come a long way in terms of TV innovations. From 2006 to 2020, it has continued to retain its position and kept bringing new products that customers can fall in love with. Even if the market share of the company in the television industry has declined in recent years, it still holds the dominant position. In 2019, the market share of Samsung in the LCD television market was down to 17% from 20% in 2008. However, Samsung continues to retain the top position. It is also the world’s largest producer of LCD panels. Overall, Samsung rules in the television market and its continuous investment in research and innovation will help it retain its market position in the longer run.

Large product portfolio:

One of the leading strengths of Samsung is its large product portfolio. The company has brought a large range of smartphones and tablets. While the smartphone is the core product of Samsung Its galaxy range of smartphones has gained immense popularity globally. It is Samsung’s range of premium phones. The company targets the higher-end segment of consumers through its Galaxy range. The Galaxy smartphones compete with Apple’s iPhone and the Galaxy Tablets compete with the iPad made by Apple. However, the product portfolio of Samsung is not limited to just these products but instead, the company makes other products too including televisions semiconductors, LCD displays, NAND Flash memory units, as well as 5G equipment. While this reduces its dependence on its core products, the diverse product portfolio is also a critical source of leverage in terms of competition and faster business expansion.

Primary Weaknesses of Samsung:

Weak position in China:

China has grown into the world’s largest market for smartphones followed by India. The United States is now the third-largest market for smartphones. However, while Samsung has managed to retain a strong position in both India and the US, in the Chinese smartphone market, it is in a considerably weaker position. China is the largest and the most profitable market for smartphone brands because of the large customer base it offers. However, it is the local brands mainly that rule the Chinese market. Apple’s market share in the Chinese market is much larger compared to Samsung.

Huawei leads the Chinese market with the largest market share followed by Vivo, Oppo, and Xiaomi. Samsung has a small and almost negligible share in the Chinese market. Its market share in China has kept fluctuating between 0 and 1%. According to counterpoint research, the market share of Samsung based on the number of shipments in the first quarter of 2020 was only 1% and again fell to 0% in the second quarter. China could have been a highly profitable market for Samsung if it managed to grow its market share there. Even the growth of a few percentage points can make a remarkable difference for Samsung.

Declining revenue and profits:

Since 2019, the net revenue and profits of Samsung have been declining steadily. Its revenue and operating profit declined in 2019 compared to the previous year mainly because of weaker performance across its memory business units and LCD display panel units. Despite a growth in the number of shipments in 2019, the prices of DRAM kept declining leading to lower profits for the memory business unit of Samsung. Apart from that, the demand for LCD panels continued to weaken causing the LCD panel business of Samsung also to suffer a decline in profits. The net revenue of the company fell in 2019 to 230 trillion KRW from 243 Trillion KRW in 2018. The operating profit of the company saw a steeper decline in 2019 compared to the previous year. The operating profit of the company was down to 27.8 trillion KRW from 58.9 Trillion KRW. While the demand for smartphones is down in 2020 due to Coronavirus, it is expected to fall across the other product categories as well, causing Samsung’s profit to be through a more severe decline.

High dependence on the US market:

A large part of Samsung’s revenue comes from the United States market. The company has also maintained a strong position in some more markets. However, financially speaking, the US market matters a lot for Samsung. Compared to the United States, Samsung enjoys a much smaller market share in the first major market for smartphones — China. So, it leaves Samsung dependent on the United States mainly for its revenue. While Samsung has maintained a strong position in India, the growing clout of Chinese brands that offer smartphone sets at competitive prices affects Samsung’s revenue there also. In India, Samsung is still the second most selling brand.

Primary Opportunities before Samsung:

5G technology:

Samsung is already reaping the benefits of being a leader in the 5G smartphones segment. It has acquired a strong market share in the US market in the 5G smartphone segment. During the first quarter of 2020, around 3.4 million 5G smartphone sets were sold in the United States, which was around 12 percent of all the smartphones sold in the market during the period. Samsung has currently a headstart in the 5G segment and compared to its leading rivals like LG, One Plus, Motorola, and TCL, the South Korean company is in a much stronger position in the United States. Samsung’s Galaxy S20+ 5G has gained fast popularity among affluent consumers in the leading metropolitan cities in the United States. However, the real test is going to begin when Apple launches 5G enabled iPhones later this year. As in the case of Samsung, 5G phones can be highly profitable since users are willing to spend more on these sets due to the faster internet experience they offer.

Moreover, the arrival of 5G has brought additional opportunities for Samsung which is also a maker of 5G equipment. Samsung is off to a strong head start in this area as well. In September 2019, Samsung scored a big win with Verizon wireless communication selecting it as the provider of 5G networking equipment. It is a five-year deal that involved around $6.6 billion worth of networking hardware and related services. Apart from being a mega-deal, it could become the gateway for bigger wins for Samsung outside the US as well. For example, this will give the payers in Europe the necessary confidence to consider Samsung’s networking equipment. The good news is that the company has beaten established leaders like Nokia and Ericsson this time. The deal with Verizon will help the company strengthen its footing as a provider of 5G networking equipment.

Growing demand for digital services:

The demand for digital services have kept growing over the past several years. However, the demand for these services was boosted further due to the coronavirus since a large number of people were leading lives locked up inside their own houses and had to depend on digital services for several things ranging from ordering essential products to entertainment. Most of the people around the globe use their smartphones to avail of online services whether it is e-commerce or entertainment.

The demand for smartphones declined in the first quarter of 2020, mainly because of the economic decline that followed the spread of Covid-19. On the other hand, Covid-19 has pushed the demand for digital services higher around the world which was evident from the sharp surge in the audiences of Netflix and Facebook following the spread of the pandemic and amid lockdowns in various parts of the world. As the situation returns to normal and employment level rises, it could lead to faster growth in sales of smartphones including 5G sets which would be highly profitable for a smartphone brand such as Samsung.

Acquisitions and diversification:

Samsung has a diversified product portfolio that caters to a broad group of customers including individual customers from various segments as well as corporate customers like Verizon. However, there are emerging opportunities in several areas including the latest technologies like AI, IoT, self-driving cars, and other technologies. Samsung has made several acquisitions in its history. These acquisitions have helped the company cement its position in the electronics and smartphone industries. Acquisitions can be a great source of growth by providing opportunities to hack into new user segments as well as access to new markets.

For example, the acquisition of Harman in 2017 has helped the company cement its position in the electronics industry. The unique capabilities of iconic audio brands created by Harman combined with Samsung’s industry-leading display technologies will help the company deliver enhanced audio and video experiences to consumers and professional end markets.

Primary Threats before Samsung:

Coronavirus:

The Covid-19 pandemic has emerged as the biggest threat before businesses globally. Its impact will be felt even into 2021. According to several senior scientists, it is a threat that society needs to learn to live with. While it began abruptly in January 2020, before businesses could sense the scale of devastation the pandemic could cause, it had jeopardized supply chains and made it difficult for physical businesses to operate on a full scale. While the impact on the digital and cloud industries was relatively lower, the effect of the pandemic on the global supply chains brought a large number of businesses to an abrupt halt, including those in the automobile, aviation, and manufacturing industries. At the other end, the pandemic has caught economies by the tail sending them into a tailspin. Its impact has been severe on the primary, secondary, and tertiary sectors in the global economy.

The largest economies and markets like the US and China have also felt a severe impact as unemployment levels ran very high as the pandemic broke out. With the pandemic, consumer behavior around the world has also changed profoundly. People are spending on essentials mainly and shopping more using digital channels. While China has been the first nation to have recovered from the pandemic and the US has also reopened, the impact has been deep in specific areas of the two leading economies and it might take some time even after a vaccine is released to fully recover from the losses caused by Coronavirus.

Overall, in such an environment, the sales of Samsung products were bound to fall and they did. If the brand was able to mitigate the threat from Coronavirus to a large extent, then it was primarily because of its strong position in the global markets. Despite that, its sales and revenue declined considerably. The impact of Coronavirus will take time to go away even after a vaccine has been found. Right now, the best thing for Samsung is to follow a strategy that helps its business and supply chain survive the blow. The pandemic has led to some major changes in the industry environment. Its economic impact is severe and would last well into 2021. However, some other challenges have also emerged since despite the reopening of major economies the changes in consumer behavior are going to last. The dependence of businesses on digital technology has also suddenly grown. Companies like Samsung are also depending on e-commerce channels for a major part of their sales during the pandemic. After the pandemic has been brought under control, these trends will remain and the shift towards digitalization of supply chains and distribution channels will continue to grow. The situation has stabilized a bit in the US economy since the outbreak. According to a forecast, the global demand for smartphones and consumer electronics can grow in the second half of the year and that is going to result in superior results for Samsung.

High competition:

Despite being the global leader in the smartphone industry, Samsung is facing a lot of competition from China and the US-based smartphone manufacturers. Its leading competitor is Apple. Apple’s iPhone range is globally famous and it is the main rival of Samsung’s Galaxy range of smartphones. In the US market, there are more smartphone brands competing with Samsung including LG and Lenovo as well as One Plus. In the other leading smartphone markets too such as India and China, there is a lot of competition from the Chinese brands as well as Apple.

Samsung has a very small or just about a less than one percent market share in the China smartphone market which is mainly because of the tough competition from the local Chinese brands. The Chinese brands that rule the China smartphone market include Huawei, Vivo, Oppo, and Xiaomi.

These are also among the leading competitors of Samsung in India. Samsung is the second biggest brand of smartphones based on shipments and market share in India. During the second quarter of 2020, its market share was 26% trailing Xiaomi’s 29%. Overall, there is intense competition in the smartphone industry. Apart from it, Samsung also faces tough competition in the other product segments including televisions and consumer electronics from brands like LG, Panasonic, SONY, and others. Intel is its main rival in the semiconductor market. While Samsung had managed to reach the top in the global semiconductor market a few years ago, Intel captured the top spot again in 2019. Overall, Samsung operates in a highly competitive industry environment which is one of the leading challenges before the company driving higher expenses on research and development as well as marketing. Higher competition also means higher pressure related to growth and market expansion.

Compliance related issues:

Legal pressures related to business have continued to rise in recent years. It is mainly because the technology industry has expanded rapidly giving rise to the need for an evolved legal framework to deal with several new concerns. Almost all of the leading technology brands are dealing with one or another legal issue. These issues can prove costly if the business is caught being non-compliant with any of the relevant laws in any region where it operates.

From data security to consumer privacy and labor laws among others, there are several legal concerns that constantly bother the technology brands. Samsung has been rattled by many legal concerns over the previous few years. Its legal tussle with Apple regarding a design patent came to an end in 2018 after having continued for around seven years. At last, the two companies settled the issue outside the court when Samsung paid Apple around $540 million according to an article published by The Verge.

Samsung has also been battling with many more legal issues including those related to the company chairman. The company chairman Lee Sang-hoon has already spent a substantial amount of time behind the bars in a bribery case. His imprisonment in the case ended in February 2018. Again, the Samsung chairman has been convicted in another case related to labor laws. He was charged by a court with disruption of union activities at Samsung. Around 24 more current or former Samsung officials have also been found guilty with similar charges.

So, the legal woes of Samsung are far from coming to an end. It has led to higher legal scrutiny and uncertainty for Samsung. The shadow of the case is also looming large on the company’s financial performance during the second quarter of 2020. Apart from that, noncompliance and legal troubles will hurt the company’s social image and reputation in the industry and the world market. At the end, it can have a noticeable impact on sales and revenue. For a large business like Samsung, it is of utmost importance to mind ethics and compliance since apart from substantial sums in the form of fines like it paid in the Apple case, it also keeps losing reputation internationally.

Economic fluctuations:

Economic fluctuations also have a sizable impact on the business of conglomerates like Samsung. The company is feeling the pinch of economic uncertainty caused by Coronavirus. While the domestic economy of South Korea has fared relatively a lot well compared to several major economies, other leading markets of Samsung like the US and India have not been able to manage the pandemic with the same efficiency. So, the impact apart from being on the personal lives of the people and consumer behavior has also been felt on economic activity in these regions. Coronavirus has directly impacted economic growth globally from the US to India, UK, and many other major economies. With declining economic activity, the level of employment and people’s spending on consumer electronics and smartphones has also reduced. In turn, it affected Samsung’s performance during the first two quarters of the year. While Samsung expects performance to improve in the second half of the year, the impact of the pandemic will remain on the world economy for longer.

The US economy has experienced a severe decline in the second quarter of 2020. According to the data released by the Bureau of Economic Analysis, the Real GDP of the US decreased at an annual rate of 32.9%. During the first quarter of 2020, the real GDP of the US had declined by 5 percent. It has also had a significant impact on the sales of Samsung products. On the other hand, the Indian economy also contracted significantly during the second quarter of 2020. India is also a major market for Samsung products. The Indian economy contracted by 23.9% during the second quarter of 2020. However, the Indian estimates of real GDP must not be compared with that of the US since the Bureau of Economic Analysis compares the real GDP for one quarter with the preceding quarter whereas the case is different from the estimate of India’s real GDP. Goldman and Fitch ratings have also estimated a deep economic recession in the case of the Indian economy.

Since growth is hampered in two leading economic markets, the impact can be negative on the sales of Samsung products in both regions. While the US market will recover faster, the Indian market may take some time due to the growing cases of Coronavirus as well as a lack of strong financial measures that could support rapid recovery.