Debate is heating up on whether Samsung Electronics will be able to better utilize its hardware-driven strategy for mobile phones amid its rivals’ focus on software due to the continued frenzy in smartphones.

Samsung only trails Finland-based handset giant Nokia in the global mobile phone industry. However, its relatively lackluster lineup of smartphones is blamed for cutting the company’s overall performances.

Analysts and experts say Samsung could make “big differences” in its smartphones in terms of advanced specifications if the technology giant increases its outsourcing in manufacturing.

“It’s quite debatable. I think producing hardware-focused components doesn’t make a distinctive difference anymore because lifecycles of smartphones are getting shorter and the quality of outsourcing companies is reaching a competitive level,” an industry executive told The Korea Times, Sunday.

“Samsung could become a fast-follower chasing Apple in the smartphone sector. But it cannot become the leader in the sector unless more progressive measures are taken,” according to the executive, asking not to be identified due to the sensitivity of the issue.

Such advice came at a time when Samsung is putting more resources into strengthening its smartphone capabilities in a move to get a “first-mover” advantage.

Samsung produces mobile phones in seven facilities including three in China and single plants in Vietnam, India, Brazil and Gumi, Korea. It was raising the portion of low-priced feature phones in its Chinese facilities, while its local line is tasked to manufacture high-end phones.

“Well, I can say that’s against the global trend. If a certain company boosts outsourcing, then more room to invest in research and development (R&D) will be created. Look at Apple’s increasing budget for R&D,”another industry executive said.

Nokia has just begun starting outsourcing some of its low-priced models to China for cost-cutting, while No. 3 handset maker LG Electronics has steadily been increasing the outsourcing portion of total manufacturing. Situations are not much different at Sony Ericsson, Motorola, Apple and Google.

According to data from Samsung Electronics, the Korean maker spent 7.27 trillion won ($64 billion) on R&D in 2009, up from 6.9 trillion won and 5.94 trillion won in 2008 and 2007, respectively.

“That’s not enough. Samsung still bets on products critical to competitiveness. Now the company should think more about what factors guarantee corporate sustainability,” the executive said.

The Korean giant released its own mobile platform, Bada, in December last year _ inspired by the moves of top-tier makers to introduce mobile operating systems.

But questions have been raised over whether the Bada platform will be able to compete with Apple OS. Also, Samsung is looking to attract more developers and content providers to build a different developer support system.

“Samsung will spend more money for software with money that could be saved from more outsourcing,” the executive said.

“Should Samsung invest more either to acquire a software company or to boost R&D capability? It is known that Samsung will buy a large-sized Internet company or software firm soon,” said Cho Sung-eun, a chief analyst at KB Investment.

A Samsung Electronics spokesman said the company has increased this year’s budget for R&D but added that doesn’t necessarily mean Samsung’s higher appetites for outsourcing.

Hardware strategy still works

Some are simply cutting the need for increased outsourcing as the company is ideally positioned between the component and consumer-product businesses.

Samsung makes chips and flat-screens _ the key parts used in consumer electronics. But it also produces televisions, phones and home appliances.

“Samsung is basically based on manufacturing. As the company has already realized vertical integration in component-making, Samsung doesn’t strongly need to increase outsourcing for cost cutting,” said Chun Seung-hoon, an analyst at Eugene Investment.

To reduce the friction that can come from competing with customers and suppliers, Samsung requires each business unit to account for its own profitability, pay for its own capital needs and negotiate with each other on the same terms as outside firms.

David Steel, a Samsung senior vice president and marketing strategist, earlier said; “It’s a portfolio of component businesses and consumer-product businesses and, within that, we don’t compromise on the idea that each business is charged with its own success.”

For instance, Samsung’s smartphone uses AM OLED display procured from its internal joint venture Samsung Mobile Display and is equipped with application processors produced by Samsung’s semiconductor division with reasonable prices.

“It’s true that there are small rooms to make sizable differences in hardware. What Samsung should do? Chances are very low that Samsung gets credits by making distinctive gaps with rivals in software,” said Kim Jong-dae, an economist at LG Research Institute.

Source:http://www.koreatimes.co.kr/www/news/tech/2010/06/133_67549.html