Samsung - Fall at the first
Bixby falls even before its first hurdle.
Samsung’s delay in the roll-out of Bixby is a strong indication of just how far behind Samsung is when it comes to artificial intelligence reinforcing our view that the investment case still lives and dies with hardware. Despite much fanfare at the launch of the Galaxy s8 just a few weeks ago, it turns out that Bixby’s functionality at launch will be greatly curtailed as Samsung can’t get it to work properly. Some of the features such as Vision, Home and Reminder will be available but the key piece that ties it all together which is Bixby Voice will not be available in US until later in the spring.
The reason for the delay is that the voice recognition system in English is not nearly good enough and substantially lags behind Bixby’s performance in Korean. This is a significant blunder on Samsung’s part as:
First: it appears that Samsung has put more effort into making Bixby work in Korean than English. We think that this was not a very sensible choice as the vast majority of Samsung Galaxy s8 devices will sell to users for whom Korean is not a language they speak.
Second: it is a sure indicator of just how far behind Samsung is compared to everyone else when it comes to developing intelligent services. Edison research has identified three stages of voice recognition of which the first and by far the most simple is the accurate conversion of voice to text. Almost everyone, even Facebook, has pretty much cleared this hurdle but it appears that Bixby has not.
Digital assistants face a critical chicken and egg problem. This is that to improve, they need data but if they are no good, no one will use them thereby depriving them of the data they need to get better. At this rate, users will try Bixby once or twice and quickly give up preferring instead to use touch based input and other digital assistants.
To make matters even more difficult, Bixby will be competing on its own device with the best in class Google Assistant which will be set by default and will sit on the home button. The net result is that we see the Galaxy s8 competing on the basis of its superb screen, high quality camera and best in class components that together will enhance the Digital Life services provided by others. We do not expect users to pay much attention to any of Samsung’s software innovations as we see them as either not useful (Samsung Dex) or not good enough (Bixby).
This leaves Samsung exactly where we left it as a vendor of commodity hardware that makes excellent returns by out shipping its nearest rivals by more than 2 units to 1. As long as it can maintain that gap, we have no fear for its profitability or its outlook but Huawei is keen to capitalise on Samsung’s woes and remains a constant threat.
Samsung’s brand has also taken a hit as a result of the Note 7 disaster, leaving the Galaxy s8 as the first real test of how much damage has been done. This combined with the recent very strong rally, is why we still do not want to get involved. We prefer Tencent, Baidu and Microsoft.
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