Samsung – Pick and mix

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I think the acquisition of Dacor is all about cross-device. 

• Samsung’s move to buy the high-end white goods maker, Dacor, looks odd but behind this move I see a strategy aimed at strengthening Samsung’s appeal across all device types.
• Dacor is a high end kitchen appliance maker whose range spans cookers, fridges and microwaves.
• It is based in California and I suspect that it has got itself into a spot of difficulty in dealing with brutal competition from the Koreans who now make first rate, and very nice looking appliances at much more reasonable prices.
• I think that Samsung could quite easily continue to turn the screws on Dacor, but by owning it, it opens up the opportunity to sell its other white goods and electronics to Dacor lovers.
• The idea here will be to keep Dacor’s products exactly as they are but to replace whatever touch screens that Dacor uses today with its own Tizen powered electronics.
• Furthermore, by bringing Dacor into the Samsung group, it should be able to benefit from the volume advantages that Samsung enjoys overall which should help make Dacor a better going concern.
• The real upside for Samsung will be to ensure that Dacor products work seamlessly with Samsung’s other consumer electronics such that there is an advantage for a Dacor owner to buy a Samsung TV and so on.
• This is all well and good but the problem with this strategy is that it is completely dependent on Samsung to create good software which is something that Samsung historically has not done well.
• Furthermore, it must be able to ensure that whatever Digital Life services it intends to offer will run seamlessly and consistently across all of these devices.
• This is very difficult to get right and the only one that has come remotely close is Microsoft which is using software it has been developing for over 10 years.
• Software was the Achilles heel that led to the failure of Samsung’s attempts to build an ecosystem in 2014 but I have some hope that Samsung has learned from its failures and will have greater success in this endeavour.
• This is an important step because having ceded the ecosystem to Google, Samsung is currently left with its volume advantage as the only way to make better than commodity margins.
• If it can generate a preference to purchase its products by having them work flawlessly together, then it should be able to charge better prices and lift its margins still further.
• There remains an awful log way to go but I think that this is the thinking that lies behind its acquisition of a company that it could otherwise probably put out of business.
• Other small high end brands such as Bang and Olufsen may also fall prey to this trend in the coming 12 months.
• Samsung look set to enjoy a good 2016 as the Galaxy s7 product cycle benefits both its top line and its profitability.
• On that basis I can see upside in Samsung to around KRW1.8m per share and it remains in my top 3 with Baidu and Microsoft.