Samsung uses their components business as a weapon against competition

May 27, 2013
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Samsung Logo 645px

So often, we decry Samsung for being proprietary. Their TouchWiz, apps, and services are all very much geared toward people buying Samsung devices. This isn’t wrong or nefarious, it’s just not what we’d like to see from such a well known brand. Android is proudly open source, and the development community is phenomenal to keep it that way.

While software is subjective to taste, hardware is a different story. Consumers will gravitate to what works best for them. The HTC One may be too good to pass up for many, whether or not you like Sense. Samsung’s plastic builds come under heavy scrutiny, leaving space in the market for variety. What we don’t see is how those devices come together, and the difficulties that device makers can come across in the process of getting their wares to market.

Jack Tong, president of HTC North Asia, recently told a story of such difficulties. In 2010, their HTC Desire was well received by fans and media alike. That handset was using an AMOLED screen, manufactured by Samsung. Accordingly, Samsung then refused to supply the display. While the reasons aren’t known, Mr. Tong said “We found that key component supply can be used as a competitive weapon.”

Samsung island

Samsung is a very comprehensive company, controlling every aspect of the hardware process. They manufacture about 90% of the components they use, a big reason they can readily saturate the market with devices. In being the leader in manufacturing, they can also demand the price they want to see. Their ongoing battle with Apple took another sour turn when they began charging a premium for a chipset Apple had long purchased for them. There was a sudden and uncalled for 20% markup for the hardware, and Apple simply had to pay it to continue selling hardware.

If Samsung had Apple in a bind, HTC was in a chokehold. By refusing to supply the display to them for the Desire, Samsung had monopolized the market. Eliminating competition by means of controlling supply, thus eliminating demand from consumers, is vicious. Samsung can, and will, do as they please.

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Solutions

It’s probably true that much of your device, regardless of make or model, is full of Samsung. As a leader in hardware manufacturing for mobile devices, they supply components to every device manufacturer there is. This sets a dangerous standard; not for quality, but for pricing. Samsung has proved they will either charge a premium of eliminate supply altogether, making for a near monopoly that can’t easily be regulated. If a contract has language that allows for it, and there is nobody else to get manufacturers their goods, the world is subject to Samsung’s whims. In the fast moving world of mobile technology, there is little reason for manufacturers to fight this with a drawn out court case.

The Taiwanese Ministry of Economic Affairs is trying to change the landscape of component manufacturing, focussing on displays. They are currently in the process of urging AMOLED makers to relocate to Taiwan, allowing a closer relationship with manufacturers. HTC, Asus, and Acer are all Taiwanese companies. They also have the added benefit of being well established and respected device makers.

It’s in everyone’s best interest for more competition, really. It creates more avenues for lower cost devices, and that’s good for consumers. As the Chinese mobile market heats up, the desire for those low cost devices is paramount. More jobs would be created in Taiwan, and having your component manufacturers in your back yard makes for better relations.

We don’t know how prevalent this is, but it’s troubling. Without pointing a finger directly at Samsung as the only culprit, they are the only one we’ve heard of doing this. There have been manufacturing slowdowns, like the issues HTC faced with the One, but those are not due to a supplier playing hardball. The more avenues manufacturers have for great components, the better and cheaper our devices will be.

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