When a jury in San Jose, California, ordered Samsung Electronics to pay $1.05 billion in damages for violating Apple’s patents for the iPhone and iPad, it did more than decide who had infringed upon whose intellectual property. To South Koreans, the legal battle highlighted the strengths and weaknesses of both Samsung and their economy in general.
“The ruling makes us reconsider the brand value of Samsung because it depicts Samsung as a copycat,” said James Song, who monitors Samsung for KDB Daewoo Securities in Seoul. “But a copycat or not, what Samsung has done with its smartphones was a brilliant move.”
“Look what has happened to companies like Nokia, Motorola and BlackBerry, which didn’t do as Samsung did,” Song added, referring to competitors whose failures to adapt quickly to the smartphone boom driven by iPhones have drastically reduced their market shares. “Samsung may lack in innovation, but right now, no one can beat Samsung in playing catch-up.”
Calling Samsung South Korea’s biggest, most profitable and most globally recognised brand barely explains the intense and often mixed emotions the name evokes among South Koreans. In Samsung, they see the crown jewel of their country’s transformation from a war-torn agrarian society into a global technology powerhouse.
Samsung’s strategy was to build something similar to another company’s product but to make it better, faster and at lower cost. Heavy investments have not been a problem; it once secured low-cost loans from a government-controlled banking sector friendly to big businesses and now draws on its own coffers, which are sloshing with cash.
After the court victory, Apple lawyers sought injunctions against sales of Samsung Galaxy smartphones and tablets in the American market. But those products had already lived through their life cycles in Samsung’s fast-paced marketing plan, analysts and Samsung officials said. With characteristic speed, Samsung had already retooled its latest Galaxy S III smartphones to stay ahead of the patent battle.
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Samsung Electronics is the flagship of Samsung Group, a family conglomerate that controls more than 80 companies that build oil tankers and apartment complexes, run hotels and amusement parks and sell insurance to housewives and artillery pieces to the military. The flagship’s operations are often faulted for their opacity. But analysts say that also allows Samsung to place huge bets and do so quickly.
Samsung makes not only hardware but also its components; it is Apple’s biggest parts supplier and its fiercest competitor in the completed smartphone market. In a way, its rivals help Samsung compete with them. Samsung’s handset business was its growth driver, raking in 20.5 trillion won ($18 billion) in the second quarter.
The strategy worked well for the latest product it dominated — smartphones — until Apple declared war over intellectual property in April 2011, accusing the South Korean company of “slavishly copying” the feel and look of its iPhone and iPad.
Samsung appeared to consider the legal trouble a necessary cost of squeezing out a giant in yet another field it is fast dominating. Samsung’s smartphone sales in the second quarter grew 150 per cent to 50.5 million units, or a record 35 per cent of the market, according to the research firm Strategy Analytics. Apple grew 28 per cent, to 26 million units. Apple will attempt a surge back with its new iPhone model this year, but Samsung is ready to introduce the Galaxy S IV as a counter.
“The patent ruling and Samsung’s copycat image will have a negative impact on Samsung’s sales of cellphones and other products,” said Kevin Lee, an analyst at Korea Investment and Securities. “But Samsung will further widen the gap with Apple in the third quarter, though not as much as expected before the ruling.” Samsung is appealing the verdict, which it called “a loss for the American consumer.” Song said that despite the verdict, the fight for the smartphone market was over and had been decided in Samsung’s favour.
In South Korea, where Samsung’s achievements are a source of national pride, many perceived a bias against a foreign competitor in the American jury verdict. Still, the ruling reminded South Koreans of something their country lacked, a shortcoming magnified by comparisons between Samsung and Apple.
Although the name Samsung is synonymous with sophistication among South Koreans, the company has never created a product so innovative that it has defined an era in consumer culture, like the Walkman or the iPhone.
“Copying and clever upgrading are no longer viable,” the daily JoongAng Ilbo, The International Herald Tribune’s publishing partner in South Korea, said in an editorial. “Samsung must reinvent itself as a first-mover, despite the huge risks involved in acting as a pioneer, if it hopes to beat the competition.”
© 2012 The New York Times News Service