First to market
Earlier this year Samsung was first to market with its foldable smartphone. The design of the Galaxy Fold solved a multitude of challenges that all the major smartphone producers have been puzzling over for some time – namely how to maintain a smartphone’s physical resilience while allowing the screen to repeatedly bend.
In my discussions with the company over the past decade I’ve been aware of the consistent importance it has placed on innovating in this space and it is clear this has been driven by two clear imperatives: gaining market share and establishing brand dominance.
Samsung’s foldable breakthrough comes against a backdrop of lacklustre demand for smartphones over the past couple of years, with an absence of worthwhile upgrades extending the replacement cycle for devices.
Foldables could therefore be a game-changer in the segment, gaining nearly 4% of total smartphone revenue as early as next year, rising to over 15% by 2022.1
Foldables are likely to reinvigorate the market, tapping into a consumer demand for larger-screen, multi-media functions that are currently limited in the smaller hand-carry devices. Foldables could therefore be a game-changer in the segment, gaining nearly 4% of total smartphone revenue as early as next year, rising to over 15% by 2022.1
This explains Samsung’s eagerness to be first in a market that is projected to account for 63 million units in smartphone shipments and US98 billion in revenues by 2022.
5G driving demand
The timing of Samsung’s release also positions it well against its competitors ahead of the rollout of 5G. With huge advancements in download speeds, network response times and access to mobile networks expected from 5G, data consumption and the need for larger display sizes are expected to surge. Foldable smartphone penetration is therefore expected to rise over the coming years, driven by the catalyst of increasing 5G deployment.
Estimated foldable smartphone revenues, US$ billions
Estimated foldable smartphone revenues, US$ billions
Estimated foldable smartphone shipments, units in millions
Source: J.P.Morgan. ‘Foldable Smartphones – Volume 2. JJ Park; Jay Kwon; KY Oh; Samik Chatterjee.
Perhaps just as important is the positive impact on Samsung the brand.
The Galaxy Fold not only provides a saleable product into an addressable market ahead of its major competitors (although Huawei has now also brought out its own foldable version), it becomes a ‘halo product’ elevating the whole brand in the eyes of the consumer.
With Apple’s own foldable smartphone unlikely to be available until 2021, Samsung have staked an important claim here as innovation leaders.
Innovation creates leadership
Samsung is one of the emerging markets’ top-tier companies, having built an incredibly successfully global brand. Our investment case is founded on the belief that this company is clearly underappreciated relative to the cash flows it will generate over our investment horizon.
Many investors do not acknowledge the extent of the company’s innovation in its many areas of operation and do not expect this market leadership to be sustainable. Samsung, however, in our view is incredibly well positioned to benefit from trends in the next-generation technologies such as big data, artificial intelligence, augmented & virtual reality, and the internet of things as well as its breakthrough in foldable display.
Stock-driven overweight in technology
Samsung is a good example of why we are so positive in general about the technology opportunity in emerging markets. A genuine focus on innovation has enabled many emerging market companies to disrupt their industries as well as being enablers of disruption globally. Lots of these companies are now global leaders with world-class products. And despite strong recent performance in many technology-driven names, their growth potential remains in its infancy. As such, it explains our consistent stock-driven overweight in technology since 2011.
Stock-driven overweight in Technology
Source: Martin Currie, as at 31 December 2018.
11Source: J.P.Morgan. ‘Foldable Smartphones – Volume 2. JJ Park; Jay Kwon; KY Oh; Samik Chatterjee.
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