Mobile Devices

February 19, 2013

Aggressive Expansion into Silicon Valley Made by Samsung

For several years now, Samsung Electronics has had a small presence in Silicon Valley. Its U.S. semiconductor division is headquartered there, as well as a small research and development facility and venture capital office.

Yesterday, the Los Angeles Times reported that the South Korean company is making a move to occupy more real estate in Silicon Valley. Analysts are seeing this as a signal that Samsung is escalating its rivalry with Apple.

To put it mildly, the longstanding relationship between Samsung and Apple has been anything except straightforward and simple. Samsung has been one of Apple’s long time suppliers. Apple doesn’t make the iPhone by itself. In fact, it doesn’t manufacture the components nor does it assemble them into an iPhone. There are various suppliers for each of the components and they are assembled in Shenzhen, China by a Taiwanese company called Foxconn.

According iHS iSuppli, a market research firm, about 26 percent of the iPhone components are manufactured by Samsung. They have composed a graphic teardown chart that shows how the components are organized in an iPhone. You can see that chart here.

Now, let’s go back to the complex relationship that Samsung and Apple share. While both are competing against each other in the smartphone and tablet arena, Samsung is supplying slightly more than a quarter of the iPhone. While Apple is receiving parts from Samsung, it sued Samsung in April 2012 because the Samsung Galaxy bears a strong resemblance to its iPhone. It’s almost like a sibling relationship.

Since all of this has been going on, you can see why the analysts feel that Samsung’s expansion in Silicon Valley signifies an escalation of its rivalry with Apple. This could lead to a competition for the same employees, investments and innovations. According to the article, Samsung believes its Silicon Valley expansions are needed to inject more entrepreneurial DNA into the bloodstream of a company known more as an innovation follower than leader.

Young Sohn, chief strategy officer in Silicon Valley for Samsung said, “This is the epicenter of disruptive forces and I want to make sure we're part of those disruptions." Toward this end, Samsung has opened a new innovation center in Menlo Park, California. In other areas of California, they are planning to open a new research and development lab in San Jose, but the most daring and possibly disrespectful thing that Samsung has in mind is erecting a massive new semiconductor campus. The idea is to create a campus with a distinctive design that is completely intended to compete with Apple’s proposed campus. Apple is designing a campus to resemble a spaceship. Apple is looking to win the title of Silicon Valley’s most distinctive architectural landmark. Samsung is looking to take it away before it even happens. "Much of our innovation in the past was done in Korea." Sohn said. "We have to reach out to global hot spots. How we tap into global innovation efforts will dictate our success."

Samsung still lags behind Apple in the perception of which is the more innovative company. Samsung is trying to shed its reputation for being a company that succeeds through a strategy of what Tim Bajarin of Creative Strategies calls "fast following." They watch others pioneer new technologies and markets, and then rush in behind. In fact, in many cases just as they do with Apple, they supply some of the parts for other companies.

"The reason they're doing what they are doing now is that Samsung is in a position of market strength," Bajarin said. "They now are beginning to do the R&D, which will allow them to control their destiny instead of relying on other people to make breakthroughs. But to get the kind of growth they'd like, they have to make the transition from being an innovation follower to an innovation leader."

Sohn hopes that the company’s larger presence in Silicon Valley will breed familiarity and help to demystify Samsung. Right now Samsung sells more smartphones worldwide, but Apple still has the market share in the U.S.

Samsung has been expanding in small bits and pieces. The research and development lab in San Jose will be known as Samsung Information Systems America. It will be housed in two six story buildings that are currently under construction. In Palo Alto, just a couple of miles from the Stanford University campus, Samsung plans a start-up incubator.

Stay tuned to see who lands the next blow in the Samsung vs Apple rivalry.

Edited by Brooke Neuman

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