Samsung: We're Surprised by Strength of Consumer Demand

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I am pleased to be joined by David Steel, an Executive Vice President, Samsung, to take a look at some trends that he's seeing in the consumer space and some of the new offerings that Samsung has here at the Consumer Electronics Show.

David thanks so much for joining me.

David Steel: Sure. Thank you.

Glaser: How at Samsung have you seen demand for consumer products over the last 12 months?

Steel: So, actually we've been surprised by still how strong it is. I mean, certain products like the smartphone have been selling very well, and then new categories like the tablet have also been selling well. So, there is definitely still strong consumer interest in new kinds of devices. As long as there is a strong consumer benefit, the innovation is perceived to be very relevant to consumers. But, yeah, it's still held up.

Glaser: Samsung is obviously a global company. Have you seen a lot of differences in demand from say, North America to emerging markets like China or Brazil?

Steel: Oh yeah, each market is quite different. Some markets are still really at sort of the early stage of selling digital TVs for example, whereas here in the U.S. the digital TV transition happened a few years ago, and we're much further down that path.

But smartphones, for example, that's truly a global phenomenon. Young people, middle-age people, old people all around the world are buying smartphones because, they like the applications, they like the functionality and that's really a global phenomenon.

Glaser: Now, when thinking about emerging markets. Is Samsung positioning to these that maybe don't have all the bells and whistles for those kind of consumers, are you really seeing demand for those high-end sets in places outside of North America and Western Europe?

Steel: Yeah, so we've positioned our brand these days as quite a premium. So, we're targeting the latest innovations, the newest products. So we've been pushing for the last year or so now, 3D television. We've had good take up on that, not just in North America, also in Europe, around the world. But yeah, different markets have different interests.

Like I said, we're seeing different stages of the TV transition. So, emerging markets where we're selling more of the entry-level products like entry-level LCD TVs, LED TVs. Here in the U.S. we're selling some very high-end LED TVs, 3D televisions. So, just different mix of products, but really around the world an interest in the latest technology, whether it's smartphones or Smart TVs.

Glaser: Now, Smart TV is the Internet-connected TVs were a big theme, we saw during your presentation earlier. When we think about content that goes on to those TVs, you have applications, you have other video that's coming in, how have you managed those content relationships, how have you approached the value proposition with the content producers to get them on to your platform?

Steel: Yeah. So, the first thing to be clear is Samsung doesn't intend to become a media company or a content company. We're focused on what we think we do well, which is making good cool devices that are fun to use, easy to use. But then you're right, we need to partner with media companies in a way we never had to before. The past was one of where we would make devices and simply sell them, but now we have to partner with those media companies.

What we can offer them is just an incredible platform, so it used to be the content was delivered. Let's say, the video value chain through standard broadcast TV. Now we can offer all the way from a 3-inch smartphone display to a 7-inch tablet to even a 52-inch TV with apps on it.

So, many more ways that media companies and content companies can deliver that content and that's why we want to partner with them to offer those opportunities. If it's an app on all of these different devices, that can be a huge opportunity for a content company to deliver more content to consumers.

Glaser: We think five years in the future, do you see lot of people like cable companies, other incumbent content providers being cut out by direct TV connections or is that something that could be even further off?

Steel: No, I think it's hard to talk about people being cut out yet. At the moment, it's really an opportunity for a lot of different companies and everyone in the value chain, ourselves included, is trying to feel our way through this new landscape of smart connected devices. What do they mean? How should we adjust our business model? Who should we be partnering with?

So cable companies, content creators, wireless companies, service providers and then hardware makers like ourselves, are all finding our way through here, looking at what consumers will use and enjoy. It's definitely a fast-evolving landscape.

Glaser: Switching gears a little bit, Samsung announced new Wi-Fi-only Galaxy Tab, as well as a convertible tablet that also has a keyboard. As tablet market becomes increasingly large, is there anything that surprised you in terms of usage, patterns, that you didn't expect when you first entered this market?

Steel: Yes, so we actually launched this product quite recently. This is the Galaxy Tab. So this is a 7-inch device running Android. We launched this thinking it would be very much focused on the consumer market and what's perhaps surprised us has been the very strong demand that we have been receiving from the enterprise.

So, the idea of these mobile tablets computing devices that someone can take with them, Internet-connectivity, there is a lot of interest in business. They can see the efficiency improvements. So, we see great opportunity in the corporate market as well.

But, yes, very surprising just how much interest there is. And different form factors. We've already seen big growth in our netbook business, so a simple way of accessing the Internet. This is another great way for browsing the Internet, for having apps on the device. We see a lot of room to expand on tablets as well.

Glaser: You mentioned this runs Google's Android system. Do you really see that as emerging as the key competitor to Apple in the tablet operating system space?

Steel: I think we'll have to see how operating systems evolve. We've now, as of the third quarter we have become the number one seller of Android devices here in the U.S. So, we have obviously made a big commitment to Android. It's got a good ecosystem built-out in the marketplace as many, many apps. So, obviously there is a lot of competitiveness in Google.

Glaser: David, thank you so much for taking the time today.

Steel: Sure. Thank you.