Apple is Busily Locked in Child’s Play with Samsung
Rita is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After Apple (NASDAQ: AAPL) bagged some winnings against Samsung in their huge patent lawsuit, the two tech giants are again back in the ring asking for more of each other. The iPhone maker and the South Korean phone giant have locked themselves in never ending child’s play, where each keeps adding its opponent’s products to the disputed devices list.
On Nov. 23 Apple filed a motion to again add a few of Samsung’s devices to its ongoing patent infringement claim. This time the devices in focus includes those running on Google’s (NASDAQ: GOOG) Ice Cream Sandwich and Jelly Bean versions of Android operating system, namely the Galaxy S III, Galaxy Note II, Galaxy Tab 2 and a few others.
While Apple says that it has acted quickly and diligently to determine that these newly-released products do infringe many of the same claims the company has already asserted, to me it seems more like a reaction to a gradually growing fear. Apple’s share in the worldwide mobile market has been falling with each passing quarter as Android keeps on squeezing its opponents and increasing its own hold. Even Samsung is not very far behind in terms of “quick and diligent” reactions. Recently, Samsung had filed a patent suit on the iPhone 5, and just before Thanksgiving the Galaxy maker filed a request to include the iPad Mini, the 4th generation iPad, and the 5th generation iPod touch to its list of infringing devices.
There have already been a lot of discussions regarding the recent huge drop in Apple’s market cap. Though Apple had a good run this year, as its shares soared to a record high of $705.07 per share in September, lately the share price has been falling, shaving off almost one-fifth of its market capitalization. And now, this new chapter in the Apple-Samsung lawsuit will increase the cloud of uncertainty over Apple's shares.
One thing that we have observed is that Samsung is very fast and agile in adapting to changes and innovations and in launching new products. When the company's earlier products got banned, Samsung quickly introduced a totally new range of devices and continued on its path of capturing more and more market share. However, Apple hasn’t yet proved itself to be that prompt and agile. In case Samsung’s products are slapped with another ban, the phone maker will just launch another fleet of devices. But, in case Apple’s products face a ban, the damage for the iPhone maker will be huge.
While Apple is busy in an ego-clash with Samsung and automatically with Google, it is missing out on the need of the hour. The need of the hour is to capture more and more share of the market. Instead, Apple is riding in the opposite direction. The Cupertino-based company took a long time to realize the importance of a smaller 7 inch tablet and has paid heavily for the mistake. Finally, very recently it has launched the iPad Mini, but only after the space already got flooded by highly affordable devices from Google and Amazon. The company is headed for another similar mistake in the smartphones space, unless it starts producing inexpensive phones.
Many of the Apple fans put a lot of stress on the profit-making capability of the company and don’t care if the company is losing market share. What they fail to understand has been explained by Henry Blodget through an article on Business Insider. Market share is what makes the foundation for a long-lasting profit making capability. Apple enjoying good profits is not a consolation for its reducing market share. On the other hand, the less profitable Android is making sure it clears the test of time with flying colors by working on a business model that focuses on sustainability. Henry very clearly explains the case through the simple statement “as Apple's market share shrinks, its power and value as a development platform also diminishes, at least relative to that of the market leader. The risk is that, ultimately, the mobile market will see a repeat of the history of the PC market, in which Apple went from being the dominant innovator to a marginalized niche player.”
According to several industry experts, Android has now actually become much swifter and more advanced than the iOS. This is another major concern for Apple. Google recently launched the Nexus 4, and the device has been heavily praised, with only one regret: lack of LTE 4G. Few analysts are of the opinion that the Nexus 4 has the most advanced mobile operating system on the market. With an OS (Jelly Bean 4.2) more powerful than the iOS 6 and with a handset as brilliant as the iPhone 5 but at a much cheaper rate, the Nexus 4 stands as the latest potential threat to Apple. The unlocked and no-contract model of the latest from Google is available for as low as $299, as compared to the $850 price tag of the cheapest unlocked and no-contract iPhone 5, providing the consumers savings of almost 65%. For a discount as huge as this, I am sure no one will miss the LTE 4G after all.
In order to fix the problem of declining market share, Apple needs to produce inexpensive phones. Henry’s study also states that “more than 1 billion people in the world already have smartphones and tablets. The next 6 billion people who get them are going to be increasingly price sensitive--because they don't have much money. Apple's refusal to offer a truly cheap smartphone is one of the reasons that Apple is struggling in countries like India--a huge market, but one in which buyers are very price sensitive.”
Players like Samsung and Nokia (NYSE: NOK) are crushing Apple in India. While Apple is struggling in the country, with a market share just above 1%, Samsung has a command of over 51% of the market and Nokia controls around 26% of the market. Nokia’s Asha series has been a huge hit in this geographic space, and the primary reason is the affordability of the devices. Even Samsung is winning on the same ground. Samsung’s fleet of Android-powered affordable smartphones has brought great success to the phone maker.
Apple needs to think clearly and respond quickly to the changing dynamics of the market place. As more quarters pass and Apple’s market share continues to drop, its competitive advantage because of its eco-system will gradually narrow down, and a time will come when it will have to choose between market share and profit-margin. The final outcome is clear. If Apple goes with profit, its market share will become negligible and the company will turn into a niche player. Alternatively, if Apples chooses to go with market share, it will have to produce inexpensive phones meant for the masses and not just the classes.
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