Most investors recognize South Korean tech giant SAMSUNG ELECT LTD(F) (OTCMKTS:SSNLF) 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 Inc. (NASDAQ:AAPL). However, Samsung is now aggressively moving into another major growth industry: health care technology.
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 Company (NYSE:GE)‘s General Electric Company (NYSE: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. General Electric Company (NYSE: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 NV (ADR) (NYSE:PHG), the parent company of Koninklijke Philips NV (ADR) (NYSE:PHG) Healthcare. The segment reported 6% comparable sales growth in fiscal 2012 and $13.2 billion in annual sales — accounting for 41% of Koninklijke Philips NV (ADR) (NYSE:PHG)’ top line. Koninklijke Philips NV (ADR) (NYSE:PHG) manufactures diagnostic imaging equipment, patient care and clinical informatics systems, and home health care products.
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 General Electric Company (NYSE:GE), Koninklijke Philips NV (ADR) (NYSE:PHG), and Siemens AG (ADR) (NYSE:SI), Samsung intends to increase its footprint in X-ray and ultrasound products. General Electric Company (NYSE:GE) is the market leader in medical imaging products in both developed and emerging markets, however. In India, General Electric Company (NYSE: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, Koninklijke Philips NV (ADR) (NYSE:PHG), and Siemens AG (ADR) (NYSE:SI), 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 Inc. (NASDAQ:AAPL), the two companies are very different. While Apple Inc. (NASDAQ:AAPL) 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 Inc. (NASDAQ:AAPL) 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 and is written by Leo Sun.
Leo Sun owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and General Electric Company.
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