Samsung Overtakes Apple as World's #1 Smartphone Maker
Bobby is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Who would have thought that Finnish mobile phone maker, Nokia (NYSE: NOK) would see the day that it would lose its crown as the best selling mobile company in the world—which it has secured comfortably for 14 consecutive years now? However, that day came in the last week of April when South Korea’s Samsung reported its first quarter earnings, surprising analysts and investors alike when it came ahead of Nokia, shipping an estimated 93.5 million units while Nokia only shipped 82 million, a significant drop from last year’s 108.7 million units.
Little do most people know that two of the biggest rivals in the Smartphone and tablet-computer industry are actually also partners — Samsung is Apple’s (NASDAQ: AAPL) largest chip and display supplier and Apple is one of Samsung’s largest clients.
And yet, Samsung managed to dethrone Apple as the best selling Smartphone manufacturer in the world this month—currently controlling a 22% share of the market vs. Apple’s 19%. While both stocks are up, 2012 is apparently the year for the South Korean technology giant. Of course, this isn’t the first time in history that Samsung has managed to outsell Apple, but it is the first time where the margin of sales is so substantial (44.5 million units sold for Samsung vs. 35.1 million for Apple).
Why is Samsung doing better than Apple? There are numerous reasons that we can credit for this, but surprisingly, it mostly revolves around basic economic factors of pricing and product selection. In other words, Samsung offers customers a far wider range of products with varying features and satisfying all kinds of budgets — unlike Apple which has only one main product line (the iPhone) and a price tag to match. So, customers who don’t like the iPhone and all features of the iPhone will not purchase any of the models as they are more or less the same thing, with few differences between iPhone 3 and iPhone 4, for example. On the other hand, even the pickiest customer can find something to suit his or her needs and tastes when it comes to Samsung’s variety in products and price tags offered. Samsung offers phones at a much lower cost than most manufacturers whereas Apple has a fixed price and doesn’t plan to go down the price curve any time soon.
This month, Samsung introduced the Galaxy S III (to be released at the end of May in Europe and later this summer in the US), which has been announced to come with a touch screen that is almost twice as large as that of the iPhone’s (which has always been 3.5 inches), while being slimmer and lighter than Apple’s phone too. As for computing cores? This model of the Galaxy will include four computing cores compared to the iPhone’s dual-core. This will be iPhone’s biggest competitor to date, and with this month’s reports on how much better Samsung is selling than Apple, it’s time that Apple step up to their role as best selling Smartphone, or they may see sales drop even more...
Like previous versions, the Galaxy S III will use Google’s Android software, with added features like voice-command—and not surprisingly, one of the iPhone 4S’s main selling points last year was voice and face recognition. It seems like Samsung is trying to not only catch up this time, but also become the leader of the pack. It has a new pad coming out that charges the Samsung phone when placed on it without needing to connect a cable. Furthermore, it is also upgrading to 4G networks in the US, Japan and Korea for faster downloads. To be launched in 145 countries (296 phone companies), the Galaxy S III is going to be Samsung’s biggest launch, which is even worse news for Apple.
Is Apple planning to act on the challenges set forth by Samsung any time soon? Not likely, if history is anything to go by and Apple prides itself in being a “trend starter”, responding to Samsung would only be admitting that the company was hindered by Samsung and that it may feel that Samsung poses a threat to its market in some way. Further, Apple has been releasing iPhone after iPhone while watching companies like Samsung, Motorola and HTC have all gained a lot of media coverage and success on new product designs and launches, and yet Apple saw them all through—repeatedly. Apple maintained its status as one of the leading and most innovative players in the industry. In other words, while Samsung is clearing winning this round, analysts have no doubt that Apple will soon come out with new ways to make the iPhone even better and more attractive for customers (and its loyal customer-base who wait for each model release with open anticipation), setting the competition for market leader over again.
But is the gap between these two Smartphone giants really that big? Well, it’s no hidden secret that Samsung really is drawing business away from Apple, if latest figures are anything to go by, but if it’s all down to price reduction and offering phones with fewer features, then Apple will be happy to let them have that business. For as long as it’s been in business, Apple has never indicated that it would be willing to compete at lower prices—basically, if customers are looking for cheaper iPhones, they can go with used, older generation models. Considering that suppliers fight for their business even with their high prices, and the profit Apple has enjoyed for many years thanks to the iPhone and iPad, it’s clear that the company doesn’t sense a threat from Samsung just yet. Whether or not they are underestimating their rival, however, only time will tell…
What does this mean for Apple and Samsung in the long-term, though? If Apple continues to be threatened by Samsung, there’s every chance that it will be able to capturing the low-end customers that Apple cannot compete for and eventually upgrade them to higher-value phones. Moreover, the company can take advantage of higher sales revenue brought on by the lower-end of the market to improve its higher-end products and snatch away Apple’s following. Essentially, this is what Nokia failed to do—they had years of healthy cash flow but they were never able to actually innovatively leverage it into better products.
Bottom line: There’s hasn’t been a single company that was able to claim a monopoly of a niche market that it focuses on. Microsoft tried to do that in its software, and admittedly managed to do it for years, until cloud computing and mobile devices came into play. Apple will see it’s end sooner or later if it continues to be unmoving with product variety and prices are concerned, and see other companies eating into their piece of the pie—whether it’s Samsung or not is not even the big issue anymore, though for the present it seems like the South Korean giant is making huge strides on getting there sooner rather than later.
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