Samsung and Goliath

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The recent Boeing teaming effort with Korean Giant, Samsung has a lot of IFE people scratching their heads. In case you missed it the news read: “Boeing [NYSE: BA] and Samsung Electronics Co., Ltd., [OTN: SSNLF] announced today that they will explore working together to research and develop technologies that improve in-flight entertainment and communications, as well as enhance factory productivity.” Boeing noted that the relationship would; “broaden and deepen the Korean industrial ties to Boeing aircraft production.” This is a joint R & D development program and, oddly enough, it was not with one of their two IFE suppliers or a known wireless entity in the aviation business.

While Boeing typically puts deals together for their technical, political or sales advantage, the drivers behind this deal are not obvious. In fact, we heard from a number of IFE aficionados and there seemed to be more confusion than acceptance. Here is what one manufacturer of avionics hardware told IFExpress after we asked if Boeing held a competition with them for product or technology: “Unfortunately, you may know more than we do. We were surprised by this announcement ourselves. This agreement appears to be at a level above the wireless groups we are currently working with at Boeing. Since we currently have wireless business and will have future wireless business with Boeing, we certainly will be watching how this evolves. Currently, I am not sure how this impacts our business with Boeing given that Samsung currently does not have wireless aircraft products. Clearly, Boeing will be requiring wireless products that meet their stringent qualification requirements for aircraft applications. Samsung currently does not have those capabilities to develop or manufacture rugged wireless aircraft products as far as we know.”

Samsung has obviously been very successful in the mobile phone and tablet market and their consumer products are held in high esteem. After seeing a recent Galaxy product in LA, we were impressed with the quality of the handheld device. Further, PED hardware is one thing but FAA approved IFE and aircraft equipment is truly another! Their recent patent infringement lawsuit loss with Apple did cast some suspicion on their technology and business processes and others who we talked to were equally skeptical. For a bit more data, we sought others who had direct experience with this type of threat. One passionate and irate supplier was very disappointed with this deal and Boeing for a number of reasons and they told us: “My feeling is Boeing is not being fair or trustworthy in this business deal and they do not care about all suppliers who have been working with them for years. In IFE, for example, they choose only 2 suppliers for the B787 but now they are talking with Samsung? As we are an IFE component supplier, we can only talk to the two Boeing-selected companies if we want to sell hardware – we cannot even talk to other Boeing groups or individuals! Boeing has to know about Samsung and that they almost destroyed some consumer markets because of two reasons – hiring away capable engineers from established companies and currency exchange. This way they do not need to spend huge amounts of development money, but rather, pick up experts from overseas competitors. In the case of LCD products it was Japan and I feel confident in saying that they totally destroyed the Japanese LCD panel industry. Secondly, the Korean currency exchange rate is unreasonably low; therefore, their export products are selling at lower prices in overseas markets. Is this going to happen here with IFE products?”

To be fair, Samsung is a $143 Billion dollar company so they must be doing something right. Undoubtedly, their cost structures have helped them keep their prices in line and you don’t win new customers with old technology (Ask Apple!); however, the avionics business usually trails behind in hardware technology for a lot of reasons – testing, RFI/EMI, certification testing and approvals. By the time a new processor is approved for a piece of IFE hardware, the next generation is flying in a passenger’s laptop. This electronics time barrier is possibly what Boeing is seeking to overcome by working with an electronics giant.

Let’s address IFE and avionics patent technology for a moment. When Boeing looks to a Rockwell or Honeywell for a new piece of gear, price, patent exposure, experience, manufacturing processes are all part of the groundwork. We asked around if patent technology could be another reason for the Boeing choice. Another experienced manufacturer told us: “I do not believe Samsung has any important IFE patents in IFEC. In fact, I doubt if they are aware of the difficulties in using Wi-Fi on the airplane! For instance, when the B787 development program was started, Boeing was really looking for wireless connections to each seat and my old company was invited by Boeing to run actual signal transmission/receive tests. The final result was they ‘essentially gave up wireless efforts’. It is not as easy as people (including the Press) think. There will be a steep learning curve, I am sure of that.” Or, as another astute observer noted, “Another possibility that we have not discussed is the potential of this technology investment being related to airplane sales?” Reader’s Choice!
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IFExpress has been planning a story on Mark Thompson’s (CEO) Thompson Aerospace Inc., developer and manufacturer of perhaps the lightest IFE system (1NET) out there – it pays for itself in advertising revenue. He just sent a note that should make the story even more interesting: “I am just doing a meeting with the advertisers, we can make over $20K a month per plane from advertising, this is going to change the industry.”

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