If you had to send your Samsung phone in for service, you're in good company.
Samsung sells tens of millions of smartphones every year, but more than 4 million of them were returned to the company for service in the US, the company revealed in a trial this week. Specifically, it was between 4 million and 5 million a year back in the 2010 to 2012 timeframe -- and another 1 million for broken screens, according to Timothy Sheppard, a vice president of operations and finance who oversaw service and logistics.
He revealed the number while testifying Thursday in US District Court in San Jose, California, in a seven-year-long patent trial against Apple. Samsung has significantly reduced the return rate since then, Samsung said.
Trials can offer an inside look at a company when the spotlight shines on employees and operations ordinarily hidden away from public view. But companies can embrace the release of sensitive or potentially unflattering information if it serves a greater goal.
In Samsung's case, the greater goal is trying to reduce a patent infringement damage payment to Apple from Apple's suggested $1 billion to its own preferred $28 million. For that kind of price cut, they're willing to take a couple lumps in public.
The South Korean electronics giant is trying to establish in the trial that phones can be disassembled into constituent components. Doing so could minimize costs by persuading the jury that damages are based on profits from components, not the full phone. So in this case, it can be financially smart for Samsung to show its repair operation as a big business -- big enough to have built a factory in the US to handle it, Sheppard said.
What fraction of phones actually have problems? It's hard to say, given that phones often are used for several years and that Sheppard didn't offer exact numbers. But for comparison, Samsung sold 74 million phones in 2017, according to IDC.
Taking marketing control from carriers
It's not the only inside look at Samsung's operations. Samsung also had some choice words for the carriers that are its business partners. Carriers -- companies like AT&T and Verizon, though Samsung didn't mention any by name -- are a key sales channel for smartphones.
When Samsung began selling its Galaxy S phone in 2010 -- a breakthrough product for its now dominant line of phones powered by Google's Android software -- it decided to withdraw marketing funds it previously sent to carriers to market its phones, testified Drew Blackard, a senior director of marketing for Samsung in the US. The marketing shift happened during a period when Samsung was moving away from a bevy of different but related phones, each offered exclusively through one carrier.
When talking to prospective customers, the carriers' salespeople had their own interests in mind, not Samsung's, Blackard said. "It was less about the product than about the service you'd get with a specific carrier," he said.
As a result, Samsung increased its own US phone marketing from $25 million in 2009 to more than $150 million in 2010, Blackard said: "Putting that together along with a cutting-edge product allowed us to gain market share at that time," he said.
Again, there's a financial reason in the trial that justifies the airing of this sort of dirty laundry.
Specifically, Samsung wants to show that its marketing costs are an important part of its smartphone business. Samsung wants to deduct as many of these expenses in the calculation of its smartphone profits, a key factor in its damages payment.
First published May 18, 12:30 p.m. PT.
Update 2:22 p.m. PT: Clarifies the timeframe concerning the phone returns and Samsung's relations with carriers.
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