Originally Posted by Galbi
Operating "autonomously" or not, all of the business operations are consolidated on a single financial statement at the end of each quarter. Each divisions dont generate their own financial statements. It all gets combined together under Samsung Electronics.
The ironic thing about this business relationship is that one side is suing the living crap out of each other while the other side in the business realm, they are a cozy couple.
Foxconn doesnt produce their own goods but goods of others. But I understand your point. In fact, Samsung is starting to venture into the contract manufacturing semiconductor business as an additional revenue source for them.
That's true about one financial statement under Samsung Electronics but the semiconductor and display divisions are the pillar of the company. They don't have the surface glamour of its TV and mobile divisions that market its own branded products but these divisions are the like the engine that keeps the overall Samsung machine rolling.
The relationship between Apple and Samsung is very interesting, almost fascinating. As antagonistic as they are on the mobile front, they are as cozy on the supplier-customer front in which both sides benefit handsomely from the relationship.
Originally Posted by Galbi
Apple's net margins are higher only because they have very little to no fix costs in their balance sheet. On the other hand, Samsung, with its many, many factories and research centers situated around the globe, have lots of fixed cost infrastructures. Therefore, the net margins are much smaller. Take away all those fixed costs and Samsung's net margins will shoot up drastically.
Why doesnt Samsung get rid of all those fixed costs and outsource them? Secrecy is one reason, quality control, flexibility to create new product categories, influence the market by being a formidable player (LCD)...basically setting industry standards (screen sizes) and others.
I'm surprised that a company like Apple, who regards its corporate secrets as one of its top priorities, delegates the manufacturing of its core products to a third party source 3000 miles away in a communist country China and expect no one to leak product details. Doesnt that seem counter intuitive to what their goal is? If they want to keep their secret they should have full control of the production of their products and own the plants no? This just leaves me to one conclusion: cheap cost and thus profit margin.
Apple focuses on what it does best and manufacturing is not one of them. What name brand consumer electronics companies based in the US or Japan or Europe have vertically integrated manufacturing for PC's and mobile devices? There's a very good reason why electronics manufacturing has prospered in East Asia and it's not just the cheap labor as some people like to claim. Generally speaking, the work force is relatively well educated (especially in math), disciplined, and very diligent. And, of course, there is also the scale factor with the sheer size and density of population in countries like Japan, Korea and China.
There is just no way an electronics manufacturing base like the one in Asia could have developed in America over the past two decades. There are macro socio-economic factors at play here on a global scale and that's why things are the way they are. Apple survived due to many things in the late-90's that Jobs did when he returned but the one thing that often gets overlooked is that he shut down all of Apple's factories (as well as product lines and warehouses) in the US and outsourced the manufacturing. If he hadn't done that Apple would not have survived when they were mere months away from bankruptcy.
Horace Dediu at Asymco (a truly superb tech industry analysis site with a heavy focus on Apple) once suggested that Apple should build their own manufacturing bases in China or other cheap labor sources around the world. It's an interesting idea but I don't think it would work. It's just not where Apple's core competency lies and Apple would lose the flexibility once they have to manage the realities of running huge factories of hundreds of thousands of employees in a foreign country. What Apple has now works and works very well, so why would they want to mess with it? A factory can become a major albatross around the neck of a company that needs to move with speed and agility.
On one hand, Apple and Samsung have a very complementary relationship because the two companies' cultures and business models could hardly be more different in the same industry. As much as I abhor Samsung's shameless copying of Apple's ideas I have to hand it to Samsung as a world class technology company. Samsung has thoroughly vanquished the likes of Sony, Panasonic and other Japanese electronics companies that it was once decades behind on. Samsung knows what it's doing and they're very good at it.
As a Korean-American who lived most of my youth there and still visit on a regular basis, I really don't like the inordinate amount of power, wealth and influence the family-controlled chaebol conglomerates like Samsung, LG and Hyundai wield on the economy and society of Korea. These companies act and operate like military kingdoms hellbent on conquest of anything and everything. Why does Samsung dabble in everything from selling life insurance to building apartment complexes and from building rice cookers to huge oil tankers?
The sprawl of these conglomerates is just absurd. They grew unchecked during the authoritarian rule of President Park Chung-Hee in the 60's and 70's with generous subsidies from a government that was only interested in exporting as many goods as possible at the cheapest possible prices. Now these conglomerates are so deeply entrenched that the government is almost powerless to stop them. Trust me; a lot of the Korean populace do not like these conglomerates at all but at the same time, they sure wish their kids can get employed there.
What would be really good for the Korean economy is to break up these humungous monolithic conglomerates and set each of their business divisions free to compete in a more nimble and innovative manner instead of reporting their business results every quarter to the almighty chairman and hope he is satisfied with the results. They aren't driven to develop and produce truly great products; they're more concerned about getting their chops busted by their superiors in a huge pyramid-like structure.
Sure, that kind of thing exists in Apple as well and many other large companies but the way the typical Korean conglomerate works is enforced through a rigid seniority system and culture of intimidation. A friend of mine who works at Hyundai's department store division told me that once the chairman was visiting their building. There were sirens going off in the building shouting: "The Chairman is coming! The Chairman is coming!" The office workers had to line up the hallways like honor guards and bow down as the Chairman and his contingent strolled by. I mean, yeah, this kind of stuff still exists in Korea. Samsung is very similar with strict suit-and-tie dress codes and military-like hierarchy and formalities.
Anyway, you can see why these types of companies are very good at manufacturing and not so good at coming up with their own creative ideas. Apple will leave the manufacturing to the ones who are good at it and focus on what they do best.