Short-Term Woes Can’t Dent Dominance By Apple, Samsung In Consumer Electronics

Oh-Hyun Kwon, (L), CEO and vice chairman of Samsung Electronics Co. is intervieved by David Rubenstein during the Economic Club of Washington breakfast.

For all the handwringing about lack of significant innovation in the iPhone lately, Apple just posted its best quarterly growth in two years. And a year after its debacle with fire-causing batteries, and on the same day that it turned over top management, Samsung last week reported a record-high profit for the second quarter in a row.

So despite the soft underbellies that each of these global electronics giants is protecting, Samsung and Apple have firm control over the most important consumer segment: cell phones. In fact, they’re expected to be the world’s most profitable companies in 2017, excluding Chinese banks, according to S&P Global Market Intelligence.

The importance of their dominance came to the fore again on Monday as the U.S. Supreme Court rejected an appeal by Samsung to strike down a $120-million award to Apple in a dispute over patent infringement. Samsung had sued Apple over its use of quick-link, slide-to-unlock and autocorrect features. Their in-court rivalry will continue in May as a separate case will determine how much Samsung must pay Apple for infringing three of its design patents.

“Samsung and Apple are expected to be the world’s most profitable companies in 2017, excluding Chinese banks.”—according to S&P Global Market Intelligence

But there’s a love-hate dynamic at work in the relationship between the two companies, not just rivalry. That’s because Samsung’s components division makes $110 from each sale of Apple’s new top-of-the-line, $1,000 iPhone X. Apple relies on Samsung to supply screens and memory chips for the X, its highest-priced iPhone.

“These are two of the largest companies on the planet deeply tied at the hip and directly competitive,” Davi Yoffie, a professor at Harvard Business School, said. “That makes this stand out compared with almost any relationship you can think of.”

Both companies face deep concerns by investors and others. While Samsung just established a new artificial-intelligence lab in Montreal, analysts say that it has been too slow to adapt in AI and in augmented reality. Both established electronics giants and a gaggle of startups have leapt ahead of Samsung in these crucial areas, observers say.
Plus there’s the glaring instability at the top of Samsung. Last week, the weird merry-go-round took a decisive turn when the board of Samsung appointed three executives to run its major business units and fill a yawning leadership vacuum that has been forming at least since 2014 because of corruption, health issues and other problems at the top of the family-controlled company.

And Samsung is still having to deal with suspicions about its products that were prompted by last year’s debacle of recalling its fire-prone Galaxy Note 7 phone.

Meanwhile, Apple—under CEO Tim Cook—faces questions about its new iPhone 8 and 8 Plus, which had the weakest initial sales of any new iPhone in years, according to estimates by market research firms. The complementary iPhone X began shipping in September, featuring facial recognition and an edge-to-edge display, but has been dogged by production challenges.

Yet despite these vulnerabilities, there is no company that is threatening either of these two for title of world’s most dominant tech titan. Each has significant wiggle room, and that’s putting it mildly.

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Dale Buss
Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other top-flight business publications. He lives in Michigan.

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