How Samsung Became the World's No. 1 Smartphone Maker

Samsung is making efforts to strengthen its position by opening a software development center in Silicon Valley. It may never have the kind of operating system control that Apple has. Samsung does, however, use its production depth and flexibility in ways that are arguably as powerful. It makes the processors, memory chips, and cameras that are in not only their own smartphones but also in many others—including the microprocessor in the iPhone 5. The express policy of the company is that the components business is walled off from the “set” business (its own finished products, like the Galaxy S 4), and that the one side doesn’t know what the other is doing. But few people who watch the company think Samsung keeps itself in the dark. New technologies take time to develop, particularly if that technology is needed in large quantities. “Having that early-stage insight into the supply chain has been one of the key factors to give them an edge,” says Neil Mawston of Strategy Analytics. “They can see three years ahead.”

This is an extremely sore subject with some of Samsung’s customers. Apple sued Samsung in the U.S. and elsewhere for patent infringement, from the basic shape of the phone to how a screen bounces back when users scroll to the bottom; Samsung denies the accusations, and has countersued. The legal war shows no sign of ending. Apple won a round in August, when a federal jury awarded Apple $1 billion in damages. That case is now on appeal, and the judge recently reduced the award by about half.

However the many court cases play out, Samsung wouldn’t have to break the law to use its position as a supplier to its advantage. If a manufacturing customer merely approaches Samsung with a request for a new kind of processor, that information is valuable. “Having a road map of, say, Apple and knowing what competitors are doing is pretty useful,” says Bernstein’s Newman. “It’s not copying, and it’s not illegal. You just know that in 2013, Apple’s going to need a quad-core processor.”


For the Galaxy S 4 unveiling in mid-March, Samsung rented Radio City Music Hall on a Thursday night. TV trucks were parked outside, and lines of people snaked around the block. The lobby was packed. As a point of comparison, a Motorola event in New York six months earlier was held in a party space that had sold its naming rights to Haier, the Chinese appliance company. Nokia’s event the same day was nearby at a low-profile, generic event facility.

At Radio City, Broadway actor Will Chase mastered the ceremonies in between surreal sketches of actors portraying average consumers using the Galaxy S 4’s features in various situations. Elaborate sets evoking a school, Paris, and Brazil emerged from the stage floor. An orchestra rose up on hydraulic lifts. A little boy tap-danced. The whole show seemed inexplicable—save as a metaphor for Samsung’s try-everything mobile business. “Samsung makes every kind of handset in every market in every size at every price,” says Evans. “They’re not stopping to think. They’re just making more phones.”

The Galaxy S 4 doesn’t come out until late April. It’s fast, has a big, bright screen, and will probably be another huge hit for Samsung, as will the S 4 mini that will go on sale soon after. Yet when discussing Samsung’s immediate future, Lee Keon Hyok betrays zero triumphalism. He’s seen this before and knows that it’s counter to the principles of New Management to derive pleasure from the success of today. “In 2010 it was a banner year for the whole group,” he says, sitting in his 35th-floor office in Seoul. “The chairman’s response? ‘Our major businesses can disappear in 10 years.’ ”

Perhaps Samsung will grow so huge it invites new government scrutiny in Korea. Maybe iPhones 6, 7, and 8 will prove so beautiful and compelling, not even the chairman will have an answer. A likelier scenario is that another company, probably from China, will do to Samsung what it has done to its competitors. “The Chinese look like Samsung did five years ago,” says Horace Dediu, an independent mobile analyst. He identifies Huawei and ZTE as particular threats; other analysts bring up Lenovo (LNVGY). “Samsung makes less profit per smartphone than Apple,” Dediu continues. “The Chinese make even less. If the smartphone is going to become a commodity, how does Samsung play in that game?”

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