OM in the News: How Samsung Survived the $5 Billion Galaxy Smartphone Recall

samsungSamsung’s recall of overheating Galaxy Note 7 phones attracted global scrutiny and hurt its brand image. But even with the $5 billion October disaster, Samsung’s 4th-quarter earnings were the highest in 3 years. “The reason,” writes The Wall Street Journal (Jan. 7-8, 2017): “competitors’ growing demand for Samsung components, a reminder of the company’s central role in the global technology supply chain.”

While Samsung’s smartphone results took a hit, the company thrived on sales to Apple, Dell, HP, and Sony, whose smartphones, laptops and TVs rely on parts Samsung manufactures. As recently as 2014, Samsung’s phones were the cash cow. But with consumers no longer snapping up new phones every year, the company—which is the world’s biggest maker by shipments of both smartphones and memory chips—has shown there is plenty of profit to be made in the parts of devices not visible to most consumers.

Even when smartphones were selling strong, Samsung poured tens of billions of dollars into semiconductors and display panels to enable phones to run faster, hold more storage and offer crisper images. Recent advances have made its components more powerful than those of competitors—positioning Samsung as an essential parts supplier for many of its rivals. This friend-and-foe dynamic means Samsung can profit even when a consumer ditches a Galaxy phone for a competitor’s product.

As its reliance on smartphones has diminished, Samsung has looked to build on its dominance in electronic components by expanding its capacity as a chip and display-panel manufacturer. It is investing over $1 billion in its Austin, Texas, semiconductor factory to beef up production of processor chips for smartphones, and $10 billion to expand its production of organic light-emitting diode displays that are thinner than traditional liquid-crystal displays.

Classroom discussion questions:

1.What is Samsung’s core competence?

2.Compare this industry to supply chains for auto makers.

 

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