Don't Pass Up This Tech Deal

Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Sometimes the markets offer deals. The mobile device market has two key players: Apple (NASDAQ: AAPL) and Samsung (NASDAQOTH: SSNLF). Oddly, Apple is trading at a discount to Google (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT) based on its price-to-earnings ratio:

Ticker

Company

P/E

P/S

P/B

P/FCF

EPS Growth Next 5 Years

NOK

Nokia

NA

0.38

1.36

NA

5.0%

BBRY

BlackBerry

NA

0.86

0.87

NA

10.0%

AAPL

Apple

10.43

2.62

3.39

9.86

19.0%

MSFT

Microsoft

15.39

3.22

3.23

11.36

8.4%

GOOG

Google

24.42

5.21

3.65

19.59

14.3%

Apple also has healthier earnings growth projections than its more richly-valued peers.

Investors have to ask if there is any reason to jump in with Apple’s shakier competitors, Nokia (NYSE: NOK) and BlackBerry, or if there is any meaningful justification for Apple being priced at such a discount to Microsoft and Google.

Apple dominates the U.S. market

For the first time, Apple passed Samsung as the top mobile-phone manufacturer in the U.S., selling nearly 18 million units during the fourth quarter, or nearly a 38% increase from a year earlier. Apple now has a 34% of the US market, while the South Korean company has a 32% share as it sold nearly 17 million handsets. LG remains a distant third by selling less than 5 million devices, which amounts to a 9% market share.

While Samsung is the global leader in mobile phones by offering less expensive mobile phones based upon Google's Android OS, the USA has always remained a stronghold for Apple. The Cupertino, California-based company also had an increase in worldwide shipments of its iPhone by 4% during the fourth quarter, totaling 52 million phones.

The iPhone was introduced back in 2007 and its touchscreen, wide variety of apps and user friendliness quickly turned into Apple's biggest revenue source. Strategy Analytics analyst Neil Mawstron stated, “Apple’s success has been driven by its popular ecosystem of iPhones and App Store, generous carrier subsidies, and extensive marketing around the new iPhone 5 model." Since its launch, a new version has been introduced approximately every year, after which the previous model gets a price cut and becomes more accessible to customers that would otherwise look elsewhere for a less expensive alternative.

On the other hand, Samsung offers a more diverse portfolio, ranging from less expensive, more basic phones to larger-screen, top of the line devices. According to analysts, Samsung should regain its top spot in the US during 2013 when new devices are released, such as the Galaxy S4. As well, according to analysts Apple might slow down as concerns from investors remain as to whether Apple CEO Tim Cook can develop and launch new hit products as late Steve Jobs did.

Besides smartphones, tablet computers are the other market in which both Apple and Samsung are the main competitors. Even as Apple was first to the market with the iPad, and still remains in the top spot after the launch of the iPad mini and a fourth-generation iPad, Samsung has toughened the competition by launching several tablets also based on Google's Android OS. Worldwide tablet sales increased 75% during the fourth quarter, to nearly 53 million devices, with Samsung more than doubling its market share from around 7% to 15%, while Apple's market share declined from 52% to 44%. On third place is Amazon, with an increase from 8% to 12%, followed by Asus and Barnes & Noble. The rise in tablet demand came from lower average prices, holiday spending and new products. IDC's Research Director for Tablets Tom Mainelli stated, “New product launches from the category’s top vendors, as well as new entrant Microsoft, led to a surge in consumer interest and very robust shipment totals during the holiday season.  The record-breaking quarter stands in stark contrast to the PC market, which saw shipments decline.”

Microsoft is the newcomer in the market, apparently struggling to find a way to sell its devices, and thus not even landing a top five spot. The Redmond, California-based company launched its Surface tablet in late October 2012, as an effort to diversify while sales of PCs and notebooks have been on a steady decline. Its shipments during the fourth quarter were of less than 1 million units. IDC's Program Manager Ryan Reith said, “Reaction to the company’s Surface with Windows RT tablet was muted at best. Microsoft and its partners need to quickly adjust to the market realities of smaller screens and lower prices".

Nokia slipping in China

What about investors who are looking for extreme value? Would buying Nokia or BlackBerry make sense as cheaper alternatives to Apple?

Two years ago, Nokia controlled about 50% of China’s smartphone market, but after foregoing its Symbian operating System and replacing it with Microsoft Windows, rivals Apple, Samsung Electronics, Lenovo Group and China Wireless Technologies wrestled much of Nokia’s share leaving it a minuscule 1% of the Chinese market.

Nokia might miss out on a chance for a comeback after supply constraints held back sales for the Chinese New Year shopping season. Out of 90,000 orders for its Lumia 920T model only 30,000 were shipped. China Mobile spokeswoman Li Yan said, “Nokia’s production is still very low and supply isn’t meeting demand at this point.  Many of our stores don’t have any units.”

London’s Strategy Analytics analyst Neil Mawston said, “China is the hottest market by far now and everybody is circling around trying to get in as much presence as they can. Nokia must not fail in China because it would place their entire worldwide recovery effort at risk.”

Conclusion

There really isn’t a compelling reason to bet on a comeback like this when Apple is doing so well and is trading at attractive price multiples.


BillEdson11 has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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