A Smartphone Analysis for Smart Investors
Kathleen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Smartphones are no longer considered to be devices that are only for a certain niche market; after all, it is estimated that 488 million smartphones were sold in 2011With figures like this, it is not hard to understand why analysts predicted that the demand for smartphones would exceed those of personal computers. Samsung is currently favored over Apple (NASDAQ: AAPL) when it comes to smart phone popularity. While Samsung had virtually no place in the list of top smart phone manufacturers nearly a decade ago, it has created a distinctive spot for itself today. Although the smartphone market as a whole is still open for new investors, it would be wise for investors to observe the industry trends that have made leading companies so successful.
Behind the Scenes of the Smartphone Race
A smartphone's operating system and technological features are some of the most important things to consider. A major glitch on the part of Google’s (NASDAQ: GOOG) Nexus One was that the initial release lacked internal storage, had an ineffective track ball, and became known for its poor camera quality. Google’s problem-ridden product was also marked by poor customer service that relied heavily on emails and online support. Likewise, a slow hardware, a dull display, and unimpressive software also gave RIM’s Blackberry a bad reputation.
Microsoft’s (NASDAQ: MSFT) phones did not reach their highest potential for success due to usage limitations. While Google’s Android remains the primary operating system, Samsung also has models based on Microsoft Windows, Symbian, and a Linux-based LiMo platform. These were in addition to Samsung’s own proprietary platform, Bada. Nokia, which was using the Symbian operating system (OS), opted for Microsoft's Windows Phone OS for its latest versions of the smartphone Lumia 800 and Lumia 710.
The Taiwan-based High Tech Operating System (HTC) made the decision to use multiple operating platforms a little earlier. Until 2009, HTC mobile devices were loaded with Microsoft’s Window mobile operating system. After it started losing out to leading competitors, HTC reassessed the situation and chose to develop devices initially based on the Android OS, and later with the Windows Phone OS. By the time manufacturers determined the best OS route for their companies, Samsung had already settled with an open source Android platform, which now commands 72% of the market share.
The Struggle for Leadership
As usual, the trends in technology are quickly evolving. Samsung is holding its ground in the battle for smartphone leadership. But despite Samsung’s rise in popularity, Apple is still considered to be a leading company in smartphone technology. While Samsung has exceeded smartphone sales in the second quarter of 2012, Apple has a competitive advantage in distribution when it comes to the Canadian and American market. Samsung ships products mainly to Luxembourg, the UK, and within most of the parts of Asia, where the market is already infiltrated by Apple.
Apple recently won its patent suit against Samsung. The jury stated that Samsung had violated 6 Apple patents, with equal share between the design and utility copyrights. Apple was granted $1 billion in damages, which is less than half of the $2.5 billion claim. Apple is expected to seek an injunction against 17 phones that were found to have infringed the patents. According to the sales figures given to the court, it seems like Samsung will barely be affected by an injunction. However, Apple’s underlying message is clear. The recent court fine is an obvious warning to Samsung and all other smartphone companies who try to replicate Apple products and technology. With the market eagerly awaiting the arrival of the Apple iPhone with an A6 chip, the lawsuit proved to be a good precaution. The A6 is believed to deliver twice the performance of the A5 chip in the iPhone 5.
Incidentally, Samsung raised the price of chips supplied to Apple on Nov. 13. Following the price rise, Apple’s margins are expected to be affected between 1% and 2%. Reflecting the change in the margin, the share price of Apple dropped from $545.00 to a low of $508.00 before recovering to $525.00 in the past five trading sessions.
Samsung’s success is not an overnight event. However, with constant releases from major competitors, no smartphone company has time to celebrate. In an industry where products quickly become obsolete, companies must focus on meeting the demand for newer products with more advanced and unique features. Although no investment is risk free, investors who pay close attention to the leaders in handheld technology are making a smart decision.
financewriterkd has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend 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!
