In the sudden twists and turns of the global stock markets and the guessing games about just how far China might take its currency devaluations and how far the U.S. Fed might raise rates in 2016, Samsung has fired a shot across the bow for both smartphones and mobile payments.
The profit miss that was reported last week by the electronics giant may be in the rearview mirror, but 2016 may shape up to be a rocky year for companies up and down the mobile device ecosystem – and that includes Apple. Samsung, of course, is the biggest display and memory chip maker, and one key tell from results – despite the fact that they are preliminary numbers, with more detail to come – rests with the operating income line, which at about 6 trillion won was notably below the 6.6 trillion won the Street expected.
That miss came despite the fact that revenues were essentially unchanged, year over year, at 53 trillion won. There are no definitive answers as to what moving pieces caused margin pressures, and there were no divisional breakouts or net income details. Not yet, anyway, and investors will get that deeper insight later in the month once audited results come through.
But the tea leaves are there, at least a few of them. No less a presence that Samsung co-chief executive officer Kwon Oh-hyun had been warning about the competitive landscape in the smartphone market, and that of course has a read across on margins. And Apple shares, of course, dipped below the psychological threshold of $100, and rests now at that level, precariously.
Samsung phone shipments are likely to have another decline, for the second straight year, having been squeezed at both the top end (from Apple) and the low end (several Chinese players). The slump in the Chinese economy – in terms of a slowing growth rate – may spur more consumers there to look toward budget phones. In the meantime, hazarding a guess about divisions: pressure in the components space, which is likely to come, eventually amid falling memory prices, may eventually crimp cash flow that can be reinvested in the phone business, and also the mobile payments business. That’s an eventuality of course, and the mobile device segment still remains profitable, given the movement toward cheaper phones in the Galaxy line.
In the meantime, the cash, and global scale, is there to make a concerted effort to get Samsung Pay, and the company’s software focus (and higher margins), into new markets. The move is a necessary one, as the battle against Android Pay and Apple Pay must be waged on new fronts. Australia, Brazil and Singapore will be the new countries to watch, and of course China and Spain have already been declared as new markets for the payments service. Australia will prove an interesting market to watch, as Google is coming there with its own payments in the first half of this year. And Samsung, of course, is also gearing up to bring payments functionality to its smartwatch.
Will the payments push help keep consumers glued to their Samsung devices? Will the Samsung Pay experience prove alluring enough in new markets to keep fickle users from turning to other devices? The tea leaves are harder to read right now, but the stage is set for a wide-ranging, and fiercely contested, battle for payments loyalty.
Maurice Levy's interest in taking control of Samsung's $1.9 billion ad agency is certainly one way of cozying up to a client.
Levy's Publicis is having a tough time keeping hold of accounts, which may explain the enthusiasm for exploring new avenues. Even if the debonair CEO pulls it off, the deal is unlikely to solve all the French ad group's problems.
Since the failure of his tie-up with Omnicom of the U.S. in 2014, Publicis has lost market share and grown more slowly than rivals, as the chart below shows.
Slow Growing
Publicis has consistently trailed its rivals on organic sales growth
Bloomberg Intelligence
In a $30 billion frenzy of U.S. media buying account reviews last year, dubbed "Mediapalooza", Publicis managed to hold on to accounts such as cosmetics company Coty and Citigroup, but finished the year with painful losses at Procter & Gamble and L'Oreal.
A potential deal to buy 30 percent of Cheil Worldwide, reported by Bloomberg News, looks like a defensive move to forge stronger ties with Samsung, since the electronics maker is the biggest shareholder of the Seoul-based agency.
Samsung is the largest single-brand advertiser in the world, spending as much as $14 billion a year to market everything from smartphones to home appliances. Publicis already does a lot of work for Samsung as its lead media buying and digital agency. In late 2014, Levy himself flew to Seoul to help retain the contract in a review process that was seen as a test of his mettle after the failed Omnicom deal.
The Cheil deal could also help Publicis strengthen in Asia, which only accounts for about 11 percent of its sales. Kepler Research estimates about 30 percent of Cheil's revenue comes from China, where Publicis has been buying up smaller targets but still trails competitor WPP, which moved into the market earlier.
Nevertheless, buying control of Cheil wouldn't solve the broader problem about client retention. There probably aren't too many other customers with an ad agency handily attached. Publicis's biggest perceived weakness is maintaining its commercial relations in a rapidly changing market where big advertisers obsess about slashing costs.
Big brands are increasingly going directly to TV companies and web giants such as Facebook to place ads. Since ad agencies make most of their profit from buying and placing ads and not in designing campaigns, the shift is existential for them.
Levy is aware of the challenge. In December he announced a revamp of the company's structure and created "Chief Client Officers" to respond to the big brands' desire to have one point of contact with Publicis instead of dealing with its myriad agencies, from Starcom to Saatchi & Saatchi.
Competitors WPP and Havas have led the way on this kind of change. The contracts Publicis lost last year were in part a punishment for its poor response.
Publicis still has to defend a contract with 21st Century Fox, which spends some $1.6 billion buying ads in the U.S., and it's also competing to win business at Sony (an account now led by Interpublic) and Volkswagen (held by WPP).
Ad Nausea
Publicis shares have done worse than rivals since Omnicom deal collapsed in 2014
Bloomberg
The French company certainly needs some good news. Its shares trade at a 20 percent discount to peers including Omnicom and WPP on a price to earnings basis. Revenue growth is expected to flatline in 2016-2017, and margins to suffer because of the $3.7 billion acquisition of digital agency Sapient and the drag from the account losses.
Binding yourself more closely to a high-spending behemoth like Samsung certainly has attractions. But landing a big fish like Sony or VW in the more time-honored fashion -- perhaps over a martini -- would say far more about the health of the business.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Leila Abboud in Paris at labboud@bloomberg.net
To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net
SAMSUNG TOOK the wraps off the Galaxy TabPro S 2-in-1 at this year's CES, representing the firm's first Windows 10 device that looks to fill the gap left by its exit from the UK laptop market.
The launch of the hybrid tablet/laptop device sees Samsung gearing up to challenge the likes of Microsoft's Surface Pro 4, offering a similar set-up with a foldable keyboard cover add-on and support for stylus input that aims to appeal to consumers and professionals.
We've rounded up everything we know so far about the device's availability, and will update this article as soon as we hear more. Until then, you can also check out our Samsung Galaxy TabPro S hands-on review.
Price
There's no word yet as to how much the Galaxy TabPro S will cost, and it's yet to be offered for pre-order.
Given the price of the smaller Galaxy Tab S 10.5 sibling, expect it to cost more than £400 given its bigger 12in display and bundled keyboard. A Bluetooth Pen will be sold separately, but Samsung has yet to say how much this will cost.
Release date
Samsung hasn't yet detailed UK availability, but has said that the Galaxy TabPro S will be available globally from February.
Specs
While we don't know how much the Galaxy TabPro S will cost or when it will go on sale, we do know what specs and features the Windows 10 convertible has on offer.
The Galaxy TabPro S is Samsung's first Windows 10-powered 2-in-1, and the first Windows hybrid to come with an AMOLED screen. This display measures an iPad Pro-rivalling 12in, and has a 2160x1440 resolution.
Intel's fanless Core M processor provides the power, and comes with 4GB RAM and 128GB or 256GB of storage. There's also a 5,200mAh battery which Samsung claims will offer 10.5 hours of life and can be charged to full in 2.5 hours.
Despite these high-end specs, the Galaxy TabPro S is one of the skinniest Windows 10 devices. The tablet measures 290x199x6.3mm and weighs 693g, while the bundled keyboard add-on measures an additional 290x199x4.9mm.
This Bluetooth keyboard also adds Surface Pro-style functionality to the device, attaching to the tablet's aluminium-clad rear to create a makeshift stand that can be used at two angles.
Like Apple's 12in MacBook, the Samsung Galaxy TabPro S has just one USB Type-C connection, but will be offered with a separate multi-port adaptor complete with HDMI and USB A and C output.
The Galaxy TabPro S has a dual 5MP camera set-up, NFC, Bluetooth 4.1 and a choice of Windows 10 Home or Windows 10 Pro. Samsung has left the software largely untouched, but has added functionality that will let you unlock the device with a Samsung Galaxy smartphone by waving it over an NFC chip in the keyboard.
Samsung’s Galaxy TabPro S will be available in WiFi-only and LTE versions, and is the first Windows-powered 2-in-1 to offer support for Cat 6 LTE speeds. µ