Samsung – 5G favour.

Samsung gives 5G a major boost.

• Samsung has launched its annual flagships for 2020 and the fact that all of them will support 5G at close to the same price as last year’s version, means that 5G penetration of the user base will be much better than I have been expecting.
• Samsung also greatly toned down the commentary about its dreadful Bixby digital assistant as well as its own services in favour of partners headlined by Google but also Netflix, Spotify and Microsoft.
• This is a good move by Samsung as having core Digital Life services like YouTube, Spotify, Netflix and Xbox working better on its devices gives Samsung a little more than just hardware differentiation.
• However, in the hardware category, Samsung also fared pretty well:
  • Samsung Galaxy s20 / s20+: represent a decent upgrade on the s10 with 120hz screen, bigger batteries, camera upgrades and 8K video.
  • These two will support 5G in the sub-6Ghz band (making them pretty much 4G phones) but because all versions will support 5G, users buying a new smartphone will become 5G subscribers whether they want to be or not.
  • This is really good news for the 5G movement because these users will be seeding the market with 5G capable devices.
  • These devices cost $100 more than the s10 device that they replace but Samsung is also offering a lot of other upgrades which I think lead to the price not being too much of a problem.
  • Samsung Galaxy s20 Ultra: This device takes the s20+ and adds a lot of bleeding-edge specifications at a bleeding-edge price starting at $1,380.
  • A massive 6.9” screen also at 120hz, 5,000MaH battery, 5G mmWave support and a 30x optical zoom lens combine are all offered for the extra $280 in price.
  • This is a great hero device, but I suspect that the real volume will be in the s20 and s20+ categories.
  • Galaxy Z flip: is clearly a big step forward for folding phones but at $1,380 volumes are going to be low.
  • This is a vertical folding device where the two main upgrades are flexible glass rather than plastic and a new far more dust resistant hinge.
  • Hence I think this should fare better in the now industry-standard JerryRigEverything durability tests (see here) than other folding phones but I have my doubts as to whether it will be enough to see folding phones start to sell in volumes.
  • I suspect that it will take another generation or two before this category is durable and cheap enough to hit the mainstream but the trend is promising.
• Most significant of all from these launches was the de-emphasising of Samsung’s own services in favour of those from its partners.
• Samsung is once again by far the market leader outside of China (thanks to Huawei) meaning that providers of Digital Life services have a greater incentive to partner with Samsung.
• To that end we are seeing much deeper integration of YouTube, Google Duo, Netflix and Spotify into Samsung devices such that these services work better and give a better experience.
• Given that Samsung has really struggled with its own services and is virtually nowhere (by RFM’s measures) on AI, this is a smart move and should help it to improve its software differentiation.
• Ideally, it should be doing more of this and encouraging Google to give it some exclusiveness in return for making purer Google devices as this is how both companies can benefit the most from each other.
• I have long argued for this (see here) and it is encouraging to see at least some small move in this direction by Samsung.
• Better margins should result which combined with an upturn in semiconductor demand should keep the shares rising in the long-term.
• However, in the short-term, I am deeply concerned about the impact that the still-idle Chinese economy will have on both consumer demand and the supply chain.
• Hence, I have liquidated my position in Samsung as well as many other equity positions as I don’t think they are pricing in the impact that this will have in H1 2020.
• I will consider buying back in H2 2020.