Can This Tech Giant Cross Over From Smartphones Into Health Care?
Sep 13th 2013 12:28PM
Updated Sep 13th 2013 12:30PM
Most investors recognize South Korean tech giant Samsung Electronics for its smartphones, tablets, televisions, and other home electronics. It often looms large in headlines for its global patent wars against its primary rival, Apple. However, Samsung is now aggressively moving into another major growth industry: health care technology.
Samsung's big push into health care started with the acquisitions of ultrasound device maker Medison in 2010, health care equipment maker Nexus the following year, and medical imaging company NeuroLogica in January. In June, Samsung launched GEO, its own line of digital radiology and in-vitro diagnostic equipment.
These three major steps are part of Samsung's outlined plan of becoming one of the world's four largest medical equipment companies by 2020. Samsung projects $400 billion in annual revenue in 2020, with $10 billion (2.5%) of its top line coming from its new medical device segment.
Ambitious plans in a crowded market
A goal of $10 billion in annual health care revenue is a very lofty number for Samsung to hit.
By comparison, General Electric's GE Healthcare division -- one of the largest medical equipment makers in the world -- generated $18.3 billion in annual revenue in fiscal 2012. Growth has been nearly flat, however, with the segment only reporting a 1% year-on-year gain last year. GE Healthcare manufactures imaging devices, clinical systems for administrators, surgical equipment, infant care products, IT services, and pharmaceutical products.
Samsung will have to contend with Koninklijke Philips , the parent company of Philips Healthcare. The segment reported 6% comparable sales growth in fiscal 2012 and $13.2 billion in annual sales -- accounting for 41% of Philips' top line. Philips manufactures diagnostic imaging equipment, patient care and clinical informatics systems, and home health care products.
Siemens is another major competitor in medical equipment, which posted a 9% year-on-year increase in health care revenue to $17.9 billion in 2012. Siemens' health care business -- which produces medical imaging products, laboratory equipment, IT solutions, and hearing aids -- accounts for 17% of its top line.
Samsung reported a mere $300 million in medical device sales in 2012, but it expects that number to surge to $500 million by the end of fiscal 2013. However, that growth trajectory will inevitably cool down as sales peak, and Samsung will need to do better than the 1% to 9% sales growth reported by its rivals if it intends to hit $10 billion in seven years.
Samsung's game plan
To compete effectively against GE, Philips, and Siemens, Samsung intends to increase its footprint in X-ray and ultrasound products. GE is the market leader in medical imaging products in both developed and emerging markets, however. In India, GE has gained significant market share with cheap and portable electrocardiogram machines that have also proven popular in rural areas of developed countries.
Like GE, Philips, and Siemens, Samsung intends to use its dominant position in electronics and appliances as a springboard into the health care industry. Samsung's strategy is to produce faster and more accurate equipment than its rivals. The company claims that its ultrasound machines can run scans faster than competing products, and its X-ray machines require the lowest dose of radiation possible.
By increasing its appeal to both medical professionals and patients, Samsung intends to gain market share as medical facilities start upgrading their devices. Last month, Samsung also expanded its health care products into Africa to establish a foothold in developing nations.
A future beyond smartphones and tablets
Although many investors compare Samsung to Apple, the two companies are very different. While Apple relies on the iPhone and the iPad for over three-fourths of its annual sales, Samsung is far more diversified and has a strong presence in consumer electronics, home appliances, semiconductors, and telecom equipment.
Many of Samsung's recent moves -- its expansion into health care, its new smartwatch, the 16-megapixel Galaxy Zoom S4, and smart televisions -- all suggest that the company realizes that sales growth of smartphones and tablets is finite as the mobile market becomes overly saturated by competitors.
Because of this, in addition to refreshing its product lines as Apple has done repeatedly over the past two years, Samsung is looking at the bigger picture -- and medical equipment could be a strong source of long-term growth.
The article Can This Tech Giant Cross Over From Smartphones Into Health Care? originally appeared on Fool.com.Leo Sun owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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