Is Apple Still Winning the Smartphone Race?

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Do you remember running the three legged race as a child? Well there appears to be a three legged race going on in the smartphone arena. Apple (NASDAQ: AAPL) and Samsung look to be joined at the hip. Together they ship nearly half of the world's smartphones. Nokia (NYSE: NOK) is strapping on the third leg with its new Lumia phones.

Market Overview

In China and around the globe, Apple is feeling intense pressure from Samsung, Asia's largest consumer-electronics maker. Samsung supplies some of Apple's device components. Samsung is also the largest maker of products that run Google's (NASDAQ: GOOG) Android software. Yet, Apple is still the dominant kingpin. If you reflect back over the last twelve years you will see several companies that climbed to the top only to crash and burn. Twelve years ago, Motorola Mobility (NYSE: MMI) was the leader in the development of the cell phone industry. It invented the flip phone and took the market by storm with its super thin RAZR driving it to a peak market share.

As Motorola sizzled Research in Motion slid into the number one position with its Blackberry. Corporations quickly embraced the phone. Blackberry dominated the corporate cell phone market as road warriors stayed connected to the office. In the nineties, Nokia began to fade from U.S. markets, though its share in China remains strong. As the smart phone fad took off, Nokia seemed to be grinding to a halt. The Nokia phone is still tops for basic cell usage but it is failing to develop smart technology to keep up with the frontrunners Apple and Samsung. The race was open for a new leg to start running when Motorola and the Blackberry fell from favor. Apple positioned itself strongly with the iPhone, creating a completely new experience with a touch screen. Apple in a brilliant move gave AT&T exclusive rights to iPhone sales. AT&T ran ahead of its competitors Verizon and Sprint Nextel.

What's Happening Now

Verizon and Sprint have only recently received access to iPhone sales. Sprint so desperately wanted access that it paid Apple $600 a phone or a total of $15 billion to have the privilege of entering the race. While the iPhone frenzy has been blooming, Google was not about to be left at the gate. Its Android phone platform entered the market with a strong push. Nokia in an effort to get back in the race has joined forces with Microsoft and the Lumia platform. Intel is also testing the waters with a new phone of its own.

None of this rumbling on the sidelines seems to deter Apple from the race. Apple is holding on to a hefty price tag of just over $560. Some analysts see Apple soaring to $675 in spite of flat sales over the last couple of quarters. Apple dominates the cell phone arena, making 70% of its profit last year from smartphones. Apple has been nipping at Samsung claiming that Samsung is infringing on Apple's patents in the Samsung 4G smartphone and Galaxy Tab 10.1 tablet computer. A judge in San Jose recently ruled that Samsung had failed to comply with issued court orders and awarded monetary sanctions to Apple. While investors approach the second quarter of 2012 cautiously, Apple is focusing on its newest iPhone version. In its efforts to produce the thinnest smartphone, Apple is likely to adopt in-cell touch panels being rolled out by Sharp and Toshiba.

It seems all the second quarter worry is a waste of time. Apple blew past even the most cautious estimates of earnings. Apple posted a second-quarter profit of $11.6 billion outstripping estimates by 23%. Demand for iPhones in China gave Apple the push that sent the company beyond the predicted 35.1 million iPhones. International growth will continue to propel Apple to greater heights. In extended trading Apple rose almost 7.8% at one point to just over $604.

Apple has been plagued with negative comments about working conditions in Chinese facilities. In an effort to address these concerns Tim Cook visited China in March, meeting with government officials and touring plants. Cook vows to improve working conditions. The company is currently in talks with China Mobile, the country's largest cell phone carrier. This would open the door to an additional 600 million subscribers. Apple's profits are up 94% over the past year and it continues to post above-average growth. The pessimists need to realize that Apple can stay the course and continue to post market gains. Apple is a good example of why corporate profits can continue to climb despite a cooling in U.S. markets. Global demand coupled with a company that has a product to meet that need, can excel. Apple sells millions of iPhones and iPads every few days. Apple's overall global market share of smartphones and tablets is small. That translates easily to potential growth in a big way.

Conclusion

Tim Cook has alluded to another product release possibly this year. If that materializes it will only add to Apple's cash cow. The company says it now has $110.2 billion in cash and investments on its balance sheet. The horizon is bright. The sun is not setting on Apple. Revenue forecast for the current quarter is about $34 billion and a profit of $8.68 a share. Analysts are predicting sales of $37.5 billion and a profit of $9.96 a share. Apple's success is in large part due to the smartphone race that clearly Apple is winning. Apple's key is that it drives change with innovative technology. That innovation continues to propel consumers and businesses to buy products despite a sluggish economy. Analysts predict with Apple's launch of the next generation iPhone in the fall that Apples stock will soar to $1,000 a share.


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