John Paczkowski

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Samsung’s Won-Pyo Hong on Android and IP Battles With Apple

The largest seller of Android handsets globally, Samsung is also the world’s second-largest maker of cellphones. And if Won-Pyo Hong — who heads global product strategy for the Korean giant’s mobile business — is right, it will soon be the first, surpassing Nokia, which has held that title for as long as anyone can remember.

Standing in his way is Apple, the world’s largest smartphone vendor and Samsung’s nemesis in an increasingly nasty legal battle over intellectual property.

4:25 pm: Hong takes the stage.

Walt Mossberg: So you just had a big honor or a coup, that new Nexus phone. The reference platform for the new version of Android is a Samsung product. What does that do for you, for Samsung? What does it mean for you?

Dr. Hong: Well, we always appreciate the close relationship with Google. And so through the, you know, thorough innovations in our company, we believe the relationship with Google is getting better and better. So this is one just example showing the integration between Samsung’s innovation and Google’s innovations and we are very excited about this device.

Walt Mossberg: Now this device is pretty similar to the Galaxy S2, right?

Dr. Hong: There are some similarity and there are some difference. So — in terms of OS platform, this is a new OS platform.

Walt Mossberg: Oh, I understand that, but I’m talking about the hardware. It’s pretty similar.

Dr. Hong: No, the Galaxy S2 is using a different screen and Galaxy Nexus is using more high resolution, higher resolution screen compared to Galaxy S2. And it’s a bigger screen as well.

Walt Mossberg: Yeah, it’s like 4.65 inches.

Dr. Hong: Four-point-six-five HD resolution.

Walt Mossberg: Is there — do you think everyone wants to carry around a phone with a screen that’s 4.65 inches?

Dr. Hong: Well, we believe there are different segments of the — in customers in the marketplace and we are confident that some group of people will be very pleased to use this larger screen on smartphones, not only larger screen, but also to provide excellent performance.

Walt Mossberg: Of course, people won’t be delighted to use a phone that has bad performance, but literally if you have a small hand, these things are little bit — they’re big to hold.

Dr. Hong: Yeah, you make a good point. And so we internally whenever we come up with a new design, we always analyze the aspect ratio of the screen with different resolution and we make sure the length of the device may not be that critical compared to the width of device.

Walt Mossberg: So you make them longer and skinnier.

Dr. Hong: A little bit longer and skinny and the HD resolution is perfect in that sense as well, so although it’s a larger screen and it will feel very comfortable to [hold] this device.

Walt Mossberg: Now, you’re the head of mobile strategy. Is that correct?

Dr. Hong: Product strategy and designs and services.

Walt Mossberg: Okay. Well, that’s an even better title. What do you think is the right price today for a high-end smartphone? And I ask you that because we’ve been at sort of $199 for — at least in the US market — for a while, and I think possibly the equivalent in other countries. But there’s at least one of your competitors that’s saying, you know, we think our phone is good enough to charge $299 for the same amount of memory that everyone else has for $199. And I’m talking about the new Motorola Droid Bionic HD. They’re saying $299. Does that make sense to you in this economy?

Dr. Hong: I think the price that we – – companies and that they are making the decision to how to set the retail price. Now you just are referring to $199 and $299. They are retail price. It’s not the price between manufacturer and – – company.

Walt Mossberg:I understand. But what do you think is the right price to go out to the consumer with?

Dr. Hong: That depends on the value that how the customer will look at. And we also are selling some devices at high price at the retail price and even lower than at the $199 also. So we’re really providing the whole different spectrum in terms of price depending on the value that we create on the device.

Walt Mossberg: Who’s your biggest competitor? Who’s the competitor that you think about most often?

Dr. Hong: You ask the same question of everyone.

Walt Mossberg: You’re onto me.

Dr. Hong: But we really enjoy seeing diversity of the portfolio in the marketplace.

Walt Mossberg: You enjoy that?

Dr. Hong: We do.

Walt Mossberg: Do you enjoy that more than if everyone had a Samsung?

Dr. Hong: We work on more participation from the, you know, players and — but we are interested in the company or companies, which bring their own innovation and also trying to create the new – – I like to give you one example, that’s – – you know, they recently announced their device portfolio and one of the devices showed that the new – – is through tight integration between the hardware and the software based on their web-based – – basis. So I think they are trying to create a very interesting business model. So, again, we really happy to see all kind of innovations from different players.

Walt Mossberg: Were you surprised that the iPhone 4S, which is the same exterior design as the previous model, sold what was it, 4 million units in three days?

Dr. Hong: You know, there are a lot of articles about the competition between iPhone 4S and the Galaxy S2. And by the way, we appreciated the comment that you made in your recent articles. But there are some that the aspects that are speculated by the industry and honestly the iPhone 4S was not surprising to us.

Walt Mossberg: That’s right. But the phone was not surprising. But — so I’m asking you, since the phone was not as surprising to you, were you surprised that it sold so many in the first three days? And it wasn’t even rolled out in most of the countries.

Dr. Hong: Right. This is, again, the Apple is always bring a good — a great product to the marketplace, so they have their own relationship with their own customers.

Walt Mossberg: Okay. All right. Let’s talk about patents. Is that your favorite subject? What do you think?

Dr. Hong: Well, I’m not representing the legal part of the Samsung Electronics.

Walt Mossberg: But I’ll just ask you a general question because I don’t have any idea whose patents, whether your patents are better than, you know, Microsoft’s or Apple’s or HTC’s are better than yours or whatever. But we’re obviously observing kind of competition by patent lawsuits going on in a big, heavy way in courts all over the world really. Is this a healthy thing? What do you think? Is this a good thing for the industry and for consumers? And if not, is there a way to solve it or resolve it?

Dr. Hong: This is kind of fundamental question and first of all we would like to ask ourselves why do you want to file this patent? Basically we think we need the tool to protect our intellectual property right, also freedom to innovate, and so filing patent is one excellent tool to do so. And by investing heavily in R&D, of course, Samsung is now becoming one of the leading patent-holder in the industry. And basically we are using our patents to defend our intellectual property right.

Walt Mossberg: But you’re also being sued by other people, right?

Dr. Hong: I’m sure they have their own reason why and though we, you know, we — our legal department is taking all possible actions to defend us.

Walt Mossberg: You should fire them if they’re not taking all possible actions. But I asked you a broader question. Do you think this is good for the industry and good for consumers for all of these things to be up in the air like will you be able to sell this product in I don’t know, Australia, will Apple be able to sell their thing in some other country where you’re trying to stop it, I guess Japan recently?

And you two are not the only two companies doing this. HTC is involved, Microsoft is involved, Motorola is involved. Everybody’s suing different people. Is this healthy? Is this the right way to go about it?

Dr. Hong: Well, in my view, the — I hope nothing will block the — our inventing something new. And — but the filing patents the only — the motivation for innovator, I don’t think so. So, again, they will continuously want to motivate our innovator in-house to make or invent something new. And so as a result, if the — us filing the patents, I think that we encourage them to do so. But, again, whether it is healthy to fight against each other, that’s different questions.

Walt Mossberg: So what’s the answer to that question?

Dr. Hong: I don’t have any personal view on that.

Walt Mossberg: I mean, it’s healthy to compete with your products in the marketplace. Is it healthy to do it through courts I guess?

Dr. Hong: Right. And, again, we welcome competition.

Walt Mossberg: [Interposing] Ah, yes, you’re very much for the big marketplace. You’re a pretty giant company — you make what, everything from chips to giant tankers and, you know, everything, buildings and Samsung is in everything, right, so?

Dr. Hong: Even in Samsung Electronics, inside Samsung Electronics, we are really a heavily diversified global company. And so we have different divisions and also depending on the regions and the business unit, they have different relationship with their customers and other players as well. So it’s very difficult for me to speak for other divisions.

Walt Mossberg: Let’s talk about tablets. I asked Andy Rubin last night why have all of the Android tablets flopped in the marketplace. You’re probably the most successful at making and selling Android tablets, but even yours haven’t gotten very much traction. Why? What’s your — I mean, your — this is your job to think about strategy. So you study everybody and you study the marketplace. Why? And what will change it?

Dr. Hong: Well, compared to last year, this is definitely much better. And early this year we announced that we are going to try to increase our volume of tablet sales at least 5 times more than last year. Last year was 1.5 million units of tablets.

Walt Mossberg: So now you want to get to 7-and-a-half million? But Apple sold 40 million, so.

Dr. Hong: Yeah, yeah, yeah. Andy Rubin, you know, really took your questions very seriously and he answered how he is going to improve the situation from Google’s perspective. And from manufacturer’s perspective where we are going to complement through the close relationship with Apple.

Walt Mossberg: But I did ask him a follow-up question. Because his answer was really about if I understood correctly building an ecosystem of services, media services primarily, you know, music, TV shows, movies. I said what’s going to happen to your partners because Samsung, you know, you have your own Media Hub system. Other companies have similar things. Since Google wasn’t providing it, you all went out and did it. Are you going to shut down your Media Hub if Google begins to offer something similar?

Dr. Hong: Again, in addition to our hardware innovation or design innovation, we also bring the — our signature services like the Media Hub you just mentioned. And our focus is a little bit different from what Google is bringing in. For example, our Media Hub service is emphasizing local contents, so the — those applications and contents are more specifically optimized for local markets, not necessarily the global platform or global content sourcing that Google is leading is covering every corner of the other regions in terms of – – contents and applications and — which is optimized — to be optimized for local content. So we — since we have really global footprint in many countries, so I think our complement is the activity, again, to bring the local contents and services to complement what Google does.

Walt Mossberg: And do you agree with Andy that this is all that’s needed to make the Android tablets take off, is have these media services associated with it?

Dr. Hong: I really — he also mentioned not only media part, but also social networking associated services that they are now enhancing inside of Google+ and also the — I think there will be a lot of room for enhancing services and bring the more innovations to this tablet portfolio. And by the way, Samsung — since you touch up on the tablet side — Samsung is quite unique in the sense that we really offering the multiple different size of the table compared to differently from the other players. And, for example, 7-inch for best mobility and 9-inch for creating the contents and 10-inch for consuming content, so again, together with Google, Samsung want to play a role to enhance the portfolio and choice of the consumer in the process.

Walt Mossberg: Do you agree with HTC that a stylus is an important part of a tablet?

Dr. Hong: It could be one very valuable part of it. And with larger screen, I think we recognize that some schoolchildren and the students at universities. I think they might find this application very interesting depending on their usage pattern.

Walt Mossberg: So are you selling a tablet with a stylus yet?

Dr. Hong: We have to talk to internally and, you know, what value that that stylus will bring in.

Walt Mossberg: Okay. All right. Explain to me this strange relationship you have where — with Apple where you’re suing them and they’re suing you and you’re competing in the store, you know, in the retail stores in the marketplace, but you’re also — they’re one of your biggest customers in terms of selling components. Is this a problem for you or something strange?

Dr. Hong: There are a number of companies that we have multidimensional relationships. Apple is not the only one. And so, again, Samsung Electronics is really operating different business units, so depending on which business unit and the business domain you are talking about, we have different relationships. Again, the Apple is not the only company.

Walt Mossberg: Does it bug you?

Dr. Hong: No.

Walt Mossberg: Why not?

Dr. Hong: Because, again, we welcome the innovation from the marketplace and we learn — we are learning from the innovation.

Walt Mossberg: Jeez, everybody welcomes everyone else – – it’s like a tea party here, you know? Come on in. We’re just happy to see you. You’re not happy to see those guys take one sale away from you.

Dr. Hong: Well, we welcome participation from multiple different players. But, again, judgment will be made by the consumers. …You know, our focus on how to satisfy our customers, you know, instead of worrying about, you know, competition. I think they make the judgment, you know, what is — will be the final winning partner, right?

Walt Mossberg: Okay. You mostly make Android phones. Are you going to have a big, big push around Windows Phone as well? Will there be kind of as many innovative Samsung devices that run Windows Phone? Will it be about even or what?

Dr. Hong: One of our key strategies in mobile portfolio is to support multi-OS platform, not only the Android and Windows and even we have our own, the platform called the bada, so through those — the multi-OS platform support, we think we can absorb different customers and different market. And in terms of the portfolio, the management, depending on regions, we have different portfolio arrangements.

Walt Mossberg: So explain to me the difference between the customers who would want Android and the customers who would want Windows Phone. What’s the difference?

Dr. Hong: We’re launching the number of Windows Phone devices based on Windows 6.5 and Windows 7. And we are going to launch some of the newer version of Windows Phones.

Walt Mossberg: Right. I asked you, though, which customers want which.

Dr. Hong: – – based on the market feedback and we found some interesting customers who shows a very strong interest in this Windows platform, especially U.S. particularly. So, again, we carefully analyzing the market segment to go forward.

Walt Mossberg: [Interposing] So it’s just geography? It’s just that they’re in the U.S.? Or does it — are they women, are they men, are they young, are they — I mean, what makes the difference here?

Dr. Hong: Our — the launching was the global and in European region as well as United States. And we did this particularly it depends on the regions. But yes, there are some—the group of customers interested in the Window Phones applications and the UI as well.

Walt Mossberg: The group of customers that are interested in the Windows Phone application and UI are what?

Dr. Hong: I think that to give you more accurate answer, I think we should — I should not get into the market analysis. But, again, the size of that market is still relatively speaking smaller than Android.

Walt Mossberg: Yes.

Dr. Hong: But it’s, you know – – the device – – and increasing the device portfolio, I think Microsoft also has very strong – – they increase the market size. And so we like to cooperate with them.

Walt Mossberg: How happy are you that Google is buying Motorola? Because you seem to be welcoming everyone. I mean, is that a move you think is a great move?

Dr. Hong: Again, we welcome their decision.

Walt Mossberg: Who said Korean electronic executives didn’t have a great sense of humor?

Dr. Hong: We — at least we respect their decision because Google made it very clear. Which is to, again, to protect the Android ecosystems and the Google partners in the Android space. And we really believe that they are going to maintain their strategy to be open and competitive and in maintaining that strategy and really —

Walt Mossberg: But if they keep it, if they keep Motorola, I mean, there are people speculating that maybe they’ll spin it out, whatever. But if they keep it, you really believe in the deepest part of your heart that they’ll never be favored by Google? Their owner, their 100 percent owner, will never favor them?

Dr. Hong: I think the best thing that we should do is keep the innovation and that innovation is the only way to differentiate ourselves from, you know, other players and stay ahead of the competition. So, again, we are very confident that we can — we should be able to do that.

And on to the audience Q&A …

Q: The question I had is earlier Walt asked you about were you surprised that they sold 4 million iPhones over at Apple in the first three days. And your comment was they have a lot of good subscribers that are loyal. And in the world of Google, consumers are getting a newer Android. Consumers are getting used to working with Android or Google as the brand and less so Samsung, HTC, and LG, et cetera. Excuse me. Same thing with Windows Mobile. So in that world, do you worry that the brand is diminished of Samsung and nobody really cares whether it’s ZTE, Huawei or LG or Samsung in that model?

Dr. Hong: The Samsung brand power is already one of the top I think 20 company globally already. And we certainly — we believe that customers recognize our brand very well. And instead of worrying about that aspect, I think as long as we maintain our strategy to be more innovative and bring the more value to customers, I think that – – necessary all of the issues in terms of the relationship between Samsung product and our customers.

Q: And in that vein, do you worry about ZTE and Huawei being very aggressive on price and, again, having a very similar phone with less care about margin and more caring about market share and world domination?

Dr. Hong: That’s a good question. And Samsung, we believe we are really uniquely positioned to really offer full comprehensive portfolio of Android smartphones and other smartphones as well. So we have, you know, high-end and premium smartphone like the Galaxy Nexus that we announced yesterday, but also we have the entry-level of a smartphone and, again, to address the consumer needs in emerging market.

Q: What is the strategy behind bada 2.0? Is that a hedge against in case you feel that the counterparties are not as welcoming to you as before?

Dr. Hong: Well, you know, surely bada 2.0 has a lot enhanced features and performance compared to bada 1.0. And also it has capability to bring, you know, even higher-end smartphones, in addition to entry-level of the smartphones. So we — I think we will be, you know, positioned to offer the different portfolio to address the consumer needs if they are interested in bada devices with bada 2.0.

Q: Would you be interested in guiding the consumer to bada? Would that be your exit strategy so as to speak?

Dr. Hong: No. Earlier we talked about Window Phones … you know, what is our strategy to address the Windows customers. And, again, the – – our innovation – – the customer needs, whether they are interested in bada, Windows, and Android smartphones from Samsung. We – – portfolio with Samsung’s innovation on it.

Q: Walt asked a little bit about the legal issues about – – I know you can’t comment very much on that. But I was kind of wondering, it’s gotten to the point where in some countries some of your products have been pulled off shelves or even off of trade show floors because of these issues, because of legal issues with Apple. Is there anything you guys are doing at Samsung in terms of your own product design, in terms of hardware and software, to react to that?

Dr. Hong: Short answer is yes and our legal department is taking all possible options. By the way, that means as a head of a product portfolio, we always have multiple different design and not only hardware design, but – – design, so if it’s necessary, we immediately provide the solutions so that we will be in better position in that particular issue, yes.

Walt Mossberg: There are some rumors around the web that this Galaxy Nexus phone was designed specifically to avoid any patent litigation from Apple. Is that a true thing or not that you specifically looked at the design of this with an eye toward avoiding them suing you over it?

Dr. Hong: Galaxy Nexus, we kick off this project with Google a lot earlier. And so at the time I think this was not really a heavy issue as we were just focusing on what kind of new design concept to bring. That was not part of the heavy discussions at the time.

Walt Mossberg: So you did not — these reports are false that the phone was designed specifically at least in part designed to avoid Apple patents and — or what they’re asserting are their patents.

Dr. Hong: I don’t know where that rumor is coming from.

Q: Apple is uniquely positioned given its growing cash balance sheet, you know, the last quarter over $80 billion, they’ve been very strategic in the context of investing with their supplier partners multiple billions of dollars in terms of big facilities, et cetera, for various components, whether it’s for smartphones and tablets, and certainly Samsung on the other side of the business as a supplier to Apple could be a beneficiary of some of those long-term investments that Apple is making. How do you strategically think about your business on the device side, the one you had, in that context where, you know, whether it’s partnering with Google or any number of players, this notion of having very long-term investments, a big balance sheet, and being able to participate more aggressively in that on an offensive basis?

Dr. Hong: I’d like to bring my CFO, you know, to answer your question. Well, Samsung’s vision is very simple and clear. The focus on the customers is through innovation. And whatever you do is helping us in long-term planning. I think our top management would make a key decision regarding that. But again, to make a comment, I think I need help from my CFO.

Q: A separate question, if I may. It has been talked about at this conference, they were — HP’s webOS. I mean, it’s up in the air, et cetera. It’s still out there. There were rumblings at some point that, you know, either you all might be interested in that as an alternative software platform. Can you comment a little bit on whether it’s from a Samsung perspective or industry perspective what the opportunities might be on that?

Dr. Hong: I’d like to make a comment from industry perspective. I believe there are enough room for several different — the OS platform. And whether, you know, HP webOS will become the power of the line to bring the innovations and the valued creations to customers, I don’t know. But again, the market is really growing and diverse upon to adopt multiple different platforms.

Walt Mossberg: Are you interested in buying it or licensing it?

Dr. Hong: We’d like to have more understanding on the HP webOS and also – – knows that, you know, that they have different business strategy moving forward. So I think we need to understand more details about what’s happening there.

Won-Pyo Hong Session Photos

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