Merging mobile phone and consumer electronics businesses, why did Samsung and Sony do this? | is a family treasure

On December 12, 2021, Samsung Electronics officially named the IT Mobile Communications and Consumer Electronics business as the DX (Device Experience) division, after Sony also merged the TV, camera and mobile phone businesses. Why did the two consumer electronics companies move similarly and make a merger move?

What they all have in common is that they are all integrated in order to further strengthen new competitiveness, such as Samsung's chip business and Sony's entertainment business. The difference between the two is that Samsung is a strong mobile phone business, and the smart home appliance business is challenged by rising Chinese companies; Sony is a strong high-end color TV and a weak mobile phone business.

Looking at Samsung Electronics' third quarter 2021 financial report, the operating profit of its consumer electronics division has dropped significantly. The consumer electronics division, which includes the visual display and digital home appliance businesses, had consolidated revenue of KRW 14.1 trillion and operating profit of KRW 0.76 trillion in the third quarter of this year. Samsung Electronics' semiconductor, display panel, IT and mobile communications divisions achieved operating profits of 10.06 trillion won, 1.49 trillion won and 3.36 trillion won respectively in the quarter.

Samsung's consumer electronics business saw a decline in operating profit in the third quarter, both sequentially and year-on-year, to less than a quarter of the operating profit of its IT and mobile communications business, due to sharp increases in material and logistics costs. In the fourth quarter of this year, Samsung expects the quarterly demand for TVs to increase, but the epidemic will reduce the demand for the whole year. In 2022, Samsung expects the growth trend of its consumer electronics business to continue to slow. By merging its consumer electronics and IT mobile businesses, Samsung hopes to create differentiated products and services.

From the investment point of view, Samsung Electronics' capital expenditure in the third quarter of 2021 reached 10.2 trillion won, of which semiconductor expenditure was 9.1 trillion won and display panel expenditure was 0.7 trillion won. As of the third quarter, Samsung Electronics' total capital expenditure in 2021 was 33.5 trillion won, of which semiconductor expenditure was 30 trillion won and display panel expenditure was 2.1 trillion won. It is clear that Samsung Electronics is betting on the future on chips and panels.

After becoming the world's largest memory chip producer, Samsung Electronics' next goal is to replace TSMC as the world's largest chip foundry by 2030, and plans to invest about $150 billion to build a logic chip fab. Samsung wants to maintain the leading position of small-size OLED panels at the same time, and large-size panels turn to focus on QD OLED. This time, Samsung has streamlined its business structure from four major sectors to three major sectors - semiconductors, display panels and equipment experience, the upstream component business maintains two departments, and the terminal electronics business unit "merges into one", which relatively enhances the status of the component business.

In April 2019 (fiscal year 2019), Sony officially merged the Imaging Products Division, the Home Audio-Visual Division, and the Mobile Products Division into the Consumer Electronics and Solutions Division. Sony merged the mobile phone business with the consumer electronics business because the mobile phone business has been losing money for many years, hoping to integrate with the consumer electronics business, retain the "tinder" of the 5G mobile phone business, and let the technology between the mobile phone and the camera and the TV coordinate with each other to create a differentiated competitiveness.

Behind the merger, the position of electronic hardware products in the entire group has become relatively weak. Unlike Samsung's goal of hitting the global chip boss, Sony wants to enhance the "soft power" of the entertainment business. In the new business structure in fiscal 2019, Sony's business segment was reduced from eight segments to six segments - games and network services, music, film and television, electronics and solutions, imaging and sensing solutions and financial services, the entertainment business maintained three divisions, and the terminal electronics business unit "merged into one", which relatively improved the status of the entertainment business.

In fact, the entertainment business has become Sony's largest source of revenue and profit. In the second quarter of fiscal 2021 (July to September this year), Sony's games, music, and film and television businesses generated sales of 645.4 billion yen, 271.6 billion yen, and 260.7 billion yen, respectively, with operating profits of 138.8 billion yen, 50.6 billion yen and 31.6 billion yen, respectively, while revenue from electronics and solutions was 581.9 billion yen and operating profit was 72.7 billion yen, accounting for about half and one-third of the total revenue and profit of the entertainment business.

This year, Sony continues to increase its investment in the entertainment field. Following last year's strategic stake in Bilibili, a chinese video site that unites the two-dimensional crowd, Sony announced its intention to acquire Indian entertainment company Zee in September 2021. Sony Entertainment Network India (SPNI) and Zee Entertainment (ZEEL) will merge their respective linear networks, digital assets, production operations and programming libraries, and the combined company will become a public company in India, driving pay TV to digital entertainment.

Of course, Sony is also strengthening its upstream image sensor business, announcing in November that it will build a chip factory with TSMC in Japan as a minority shareholder in the joint venture and a major customer of the new 12-inch wafer. Both Sony and Samsung understand that upstream core components are more profitable, less competitive, have higher operating margins, and involve core competencies than downstream terminal electronics.

The difference between Sony and Samsung is that in the overall terminal electronics business, the business structure of "fat" and "thin" is not the same. Samsung is the world's largest supplier of smart phones and smart TVs, the profit of the color TV business is decreasing, and the home appliance business such as air conditioners, refrigerators, washing machines and so on is being challenged by the growing Chinese home appliance companies, so it is the mobile phone business "with" home appliance business. Sony has the right to speak in the global high-end color TV market, the mobile phone business is weak, this year Sony launched a new smart phone that can be used as a micro single camera, mobile phone sales have rebounded, so it is a TV, camera business "with" mobile phone business.

Chinese mainland is now the world's largest production base for color TVs, mobile phones, computers, white goods, or the largest production base of upstream LCD panels, and is expected to become the largest production base of small and medium-sized OLED panels in the next two or three years, and the continuous improvement of the supply chain will help the consumer electronics business of Chinese brands to continue to improve their global competitiveness. Samsung and Sony's terminal consumer electronics business is an inevitable choice to find the advantages of market segments through high-end and customization.