Samsung Strengthens Its Camera Capabilities Through Corephotonics Acquisition

Samsung has recently bought Corephotonics, an Israeli camera technology company. The acquisition comes at a time when the lack of ground-breaking innovations and longer replacement cycles have led the global smartphone market into a decline. According to the latest research from Counterpoint Research’s Market Monitor service, global smartphone shipments declined 4% annually in CY2018, while during Q4 2018, shipments declined 7% year-on-year leading to a fifth consecutive quarter of falling sales.

In a world where smartphones are increasingly becoming indistinguishable, camera features have emerged as the biggest differentiator for smartphone brands. Even in the affordable segments, consumers, especially in India, rate camera features highly when deciding which phone to purchase (Exhibit 1).

While Samsung is no stranger to innovations with camera features, the acquisition of Corephotonics can help it enhance its offerings in future models. The Korean company has long prioritized innovative camera features. In 2018, its Galaxy A7 boasted a triple rear camera setup while the Galaxy A9 in 2018 was a quad-camera smartphone. Both models received a positive response from consumers.

Corephotonics provides end-to-end multi-aperture solutions that improve the image quality and user experience of mobile imaging, dual camera systems, and solutions for other industries. Notably, Corephotonics developed the 5x lossless zoom for OPPO, which was a success for the Chinese brand. Multi-camera competition will likely emphasize optical zoom in 2019 – along with super-wide angle. Samsung’s broad product portfolio in consumer electronics and vertical integration, makes the acquisition a good fit. Samsung is bolstering its capability in camera zoom and AI imaging through this acquisition.

We also believe Samsung will enhance its share in the affordable smartphone segment by introducing superior camera features in its lower priced models. It can disrupt dominant players in the US$75-US$150 segment, forcing them to upgrade their camera specification or lower their prices to compete with Samsung.

Exhibit 1: India Consumer Survey Results – Features

India Consumer Survey Results - Features

Source: Counterpoint Research: Consumer Lens

However, post-acquisition integration is always challenging. We expect Samsung to use Corephotonics as a Strategic Business Unit (SBU) rather than purely as a captive supplier of R&D for its own smartphones.

Assuming Corephotonics becomes an SBU for Samsung, it can have a positive impact on the image sensor (CMOS Sensor) as well as the camera module market. Samsung can retake some market share from Sony, OmniVision and others. Further, it will also look to put resources toward research and development in order to push for better camera specifications and experience, applicable across multiple industry sectors, not just smartphones.

Over the last few years, Samsung has been acquiring companies to augment its technological capabilities. Its acquisition of SmartThings in 2014, allowed Samsung to venture into consumer IoT. Now, by acquiring Corephotonics, it can leverage advanced optical and video zoom for many IoT applications. For example, it can install camera models in ADT Home Security devices for home security solutions and better monitoring. Moreover, venturing into the automotive space will be easier with TransportEye, an Advanced Driver-Assistance System (ADAS) offering from Corephotonics. These are just a few examples where Samsung can benefit through this acquisition.

Samsung doesn’t have a good track record managing its acquisitions. It will likely keep Corephotonics somewhat independent like Bixby, but with the risk of losing core talent. If that happens Corephotonics will likely lose its competitive edge in as little as 12 months. But if Samsung manages the acquisitions well, it stands to gain a competitive edge in camera innovations, an aspect that, currently, attracts most potential smartphone buyers.