Samsung Electronics Co. (005930) is out to end yet another Japanese dominance.
After beating household names such as Sony Corp. (6758) and Panasonic Corp. (6752) in televisions, memory chips and mobile phones in the past decade, South Korea’s biggest company is targeting rivals including Canon Inc. (7751) in the $32-billion-a-year market for copiers. Its weapon: chips as powerful as those running Apple Inc. (AAPL)’s iPhone.
The new focus is a blow for Japan’s electronics industry, which suffers from falling prices, competition with Korean rivals and Apple’s iconic products that made Sony’s Walkman obsolete. Reeling from record losses, Japan’s companies are unable to hit back amid a strengthening yen. Samsung -- now Asia’s biggest consumer-electronics firm -- racked up more than $80 billion in cumulative profit in the past 10 years, emerging as the world’s biggest maker of phones, TVs and chips.
“Samsung has become the center of a storm,” said Tomoko Mitani, a Tokyo-based principal analyst at Gartner Inc. (IT), an industry researcher. “Japanese makers are very keen to know what their plans are and some of them have started paying attention.”
The plan is beginning to unfold in the market for copiers, including those with multiple functions such as scanning and faxing -- the barrel-sized machines that occupy office corners.
Powerful Chip
The company introduced new copiers and color laser printers built with a 1-gigahertz processor, the same amount of computing power that runs the iPhone 4S, the smartphone capable of multi- tasking. The equipment is the first to use chips of that speed with two processing cores, able to handle tasks faster than those with single cores, according to Samsung.
Samsung said its first color copier that uses A3-sized paper can print twice as fast as comparable models. The Suwon, South Korea-based company also combined several chips into one, based on the same technology integrating chips in mobile devices, to save costs and reduce defects.
The chips Samsung developed for copiers aren’t connected to intellectual property disputes with Apple. Cupertino, California-based Apple won more than $1 billion in damages on Aug. 24 after a U.S. jury found Samsung copied the iPhone. Samsung makes the processors used in iPhones and iPads.
The two companies have sued each other since April last year as they seek dominance in a global smartphone market valued at $219.1 billion by Bloomberg Industries last year.
Now, Samsung is aiming for the heart of a market where Tokyo-based Canon, Ricoh Co. (7752) and two other Japanese companies accounted for 49 percent of worldwide sales last year, according to Gartner. Samsung lagged behind them and Norwalk, Connecticut- based Xerox Corp. (XRX) with a 3.4 percent share.
‘Differentiating Factor’
“Chip technology has always been a differentiating factor for Samsung,” Brian Park, a Seoul-based analyst at Tong Yang Securities Inc., said by phone. “They’re emphasizing their strength at chips for digital products, as they have for their mobile devices and TVs.”
It’s a model that Samsung has used in the past as it transformed itself from a copycat appliance manufacturer into a behemoth with 165 trillion won ($145 billion) in sales last year and a market valuation of about $160 billion.
Armed with thin screens, chips that help surf the Internet and run 3-D movies, Samsung and Seoul-based LG Electronics Inc. (066570) jointly controlled 40 percent of worldwide flat-panel TVs in the final quarter of last year, according to market researcher DisplaySearch. Tokyo-based Sony, and Panasonic and Sharp Corp. (6753), both based in Osaka, accounted for 23 percent of the market.
The two South Korean companies held 20 percent of the TV market in 2005, lagging behind the 34 percent market share held by Japan’s top three manufacturers at that time.
Battery Power
Japanese electronics makers including Sony, Panasonic and Tokyo-based Toshiba Corp. (6502) controlled about 93 percent of the global lithium-ion battery market in 2000, according to a statement by Japan’s trade ministry. That dropped to 48 percent in 2008 after Samsung and LG went into the business.
The story is the same in chips. Samsung controlled 40 percent of the market for dynamic random-access memory chips, the most commonly-used semiconductor in computers. Tokyo-based Elpida Inc., the only remaining Japanese DRAM maker, filed for bankruptcy protection in February and agreed in July to be taken over by Boise, Idaho-based Micron Technology Inc. (MU)
Samsung’s entry into the market for bigger copiers “poses a threat to Japanese printer makers’ growth,” said Hisashi Moriyama, an analyst at JPMorgan Chase & Co. in Tokyo. “There’s a risk that they will face more competition with Samsung slowly but steadily over two to five years.”
Defeating Japan
Defeating Japanese companies is a “mission” given by the Korean people, and Samsung ultimately aims to be No. 1 in printers and cameras, Samsung’s former Chief Executive Officer Choi Gee Sung was cited by Korea Economic Daily as telling reporters in January last year.
Canon uses a powerful processor that can handle multiple tasks such as printing and scanning simultaneously, said Gota Fumoto, a company spokesman, who declined to comment further.
Canon, which makes “image RUNNER” multi-function copiers, cut full-year sales and profit forecasts last month, citing the yen’s gain and weaker global growth.
Sales at the office-equipment division, Canon’s biggest source of revenue, may drop 5.2 percent to 1.8 trillion yen ($23 billion) this year, the company said July 25, abandoning an earlier forecast for 1.1 percent growth. The unit makes copiers, laser printers and multi-function printers for office use.
Samsung, which began selling A4 laser printers in 1990, has already gained in cheaper, single-function products, a market in which Gartner ranks it third in the world in terms of revenue after Palo Alto, California-based HP and Xerox.
Gaining Value
Samsung has been trading at higher price-to-earnings and price-to-sales ratios than Canon again this year after being lower during most of 2010 and 2011, data compiled by Bloomberg show. As of Aug. 28, Samsung’s price was about 14 times earnings, while Canon was about 12.8 and Xerox 8.3.
The bet on multi-function copiers isn’t without risks. The office industry may shrink to $30.9 billion this year and $30.7 billion in 2013, partly as tablet devices such as the iPad can be used to read and manipulate documents electronically, according to Gartner. The slowdown has hurt printer makers worldwide. Lexmark International Inc. (LXK), based in Lexington, Kentucky, said on Aug. 28 that it would cut 1,700 jobs and shut a factory in the Philippines as it explores a sale of its inkjet technology.
It also takes more than powerful machines to win over customers who also demand maintenance services and software, and Samsung needs to address those needs, said Keith Kmetz, an analyst at IDC Corp.
That’s not deterring Samsung, which plans to spend 25 trillion won this year to boost manufacturing capacity.
“Japanese vendors should be concerned about Samsung’s potential,” Kmetz said.
To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Jun Yang in Seoul at jyang180@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net
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