Software has always taken a backseat to Samsung's semiconductor and hardware businesses. But, sensing that the tech industry has begun to shift more toward software and artificial intelligence, the company has said that it wants to invert that relationship. (Image courtesy of Dennis Haslam, Flickr).

Leaving Shadow of Hardware, Software Becomes Samsung's Focus

March 30, 2016
With the market for smartphones growing saturated, Samsung is prepared to reinvent itself as a major software and artificial intelligence company, top executives said.

Between smartphones, mobile processors, televisions, and memory chips, Samsung Electronics is perhaps least known for its software. But with the market for smartphones and other gadgets getting saturated, the South Korean conglomerate is prepared to reinvent itself as a major software and artificial intelligence (AI) company.

Samsung’s chief executive, Oh-Hyun Kwon, wrote in a recent letter to shareholders that new software products would allow the company to remain competitive despite slowing hardware sales. His statements seem to follow the consensus among technology companies—including Google, IBM, and an onslaught of startups—that AI will represent the next major wave in the tech industry. That includes programs that harness the cloud to make sense of the data gathered by sensors.

“We are actively looking for M&A targets of all sorts in the software area,” Rhee In Jong, head of mobile software research and development at Samsung, said in an interview with Bloomberg Business. “We are open to all possibilities, including artificial intelligence. Intelligence is no longer an option—it is a must.”

The change of heart comes at an uncertain time for Samsung, the world’s largest manufacturer of smartphones, memory chips, and televisions. The company, which released its new Galaxy S7 smartphone earlier this month, has struggled with oversupply issues, which have forced down profits for its smartphone business. Television and memory chip sales have also seen drops in profit over the last two years.

“It makes a huge amount of sense,” says Paul Teich, a technology analyst with Tirias Research. Merging software with Samsung’s vast manufacturing capabilities would be a powerful combination, he says. Companies like Google and Apple have already begun to commission chips driven by software they are running. Samsung would be in the unique position to not only provide software—in anything from IoT devices to smart homes—but also customize chips for those services.

Samsung has already started making software investments. It has invested nearly $20 million in Vicarious, an AI company working on image recognition. Last year, it participated in a $25-million funding round for Jibo, a household robotics company. The company has also established an accelerator program for companies building services for virtual reality, IoT, and wearables.

Part of Samsung's extensive booth at the 2016 Consumer Electronics Show. (Image courtesy of Samsung).

Samsung has also partnered with LG Electronics and Hyundai Motors to build a research institute for artificial intelligence in South Korea. Scheduled to open in June, the institute will focus on developing software that can understand human language, classify images, read emotions, and summarize data. Samsung is also reportedly developing a secretary service like Apple’s Siri or Microsoft’s Cortana.

Samsung executives hope that these initial steps will begin to invert the relationship between its hardware and software divisions. “We will let software drive and lead our businesses rather than assisting the hardware,” Jong said. “We aren’t just looking at a particular technology or area. But artificial intelligence is clearly a path to take.”

In the meantime, Samsung’s competitors have spurred research into artificial intelligence. Google DeepMind has built a program that this month defeated a master of Go, an ancient board game that has bedeviled AI researchers for decades. The researchers that designed the program have said that it lays the foundation for more specialized software that interacts with smartphone users or sifts through medical records. And last year, Apple acquired Perceptio, a startup that lets companies run AI programs on their smartphones.

To help deal with its changing ambitions, Samsung has said that it will revamp its corporate culture to more closely resemble a startup. It plans to loosen its infamous military-style structure to create more fertile ground for innovation. It also wants to shorten its staff hierarchy, cut down on inefficient meetings, and facilitate more dialogue between employees and managers.

These strategies have highlighted not only the changes within Samsung but also the fundamental shift in the technology business, where gadgets are turning into platforms for sophisticated services that work over the Internet. “It is a public acknowledgement that software is eating the world, that everything is being built with intelligence,” says Teich.

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