Can Samsung Stay Ahead of Apple?
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
No matter what innovation Apple (NASDAQ: AAPL) puts forth, Samsung seems ready to respond with the line from an Annie musical - "Anything you can do I can do better; I can do anything better than you."
Samsung is in the process of rolling out its Galaxy S3, and by many accounts, it best features Apple's iPhones in more ways than one. Preorders alone have exceeded 10 million, setting a pace that Apple's iPhone 5 may find tough to beat.
As the mobile phone industry has grown over the years, we've seen key players like Nokia (NYSE: NOK) and Research In Motion (RIMM) fade into the background. Their problems stemmed from their inability to keep up with the competition. As the smartphone market has grown, so has the savvy of consumers. They are demanding devices that are built using the latest technology, and that are affordable. Striking this balance is not easy, and trying to do so places pressure on the margins of companies in this field.
Samsung and Apple have managed to rise to the top of the fray by being able to produce devices and improve on them to meet customer demand. Let's take Apple's first iPhone, which began selling in 2007. Over the years, Apple has tweaked it several times. One of the noteworthy tweaks was adding a video camera to the device way back then.
The recent addition of Siri marks another major improvement to the phone. Siri is what Apple calls an intelligent personal assistant that helps you get things done just by asking. By being able to respond to change and consistently introduce innovative products, Apple has firmly established itself as a leader in the industry. This has bolstered its position among its shareholders.
A quick glance at how its stock has traded over the past five years shows how its iPhone contributed largely to its current trading price of around $577 (at the time of writing). In 2008, it was trading just above $100.
Apple's iOS operating system must compete with Google's (NASDAQ: GOOG) Android OS. This means making constant changes, which can be costly. Still, both companies have been able to maintain strong margins.
Apple's gross margin of 43.95% is second to Google's 64.88%. Its operating margin is slightly lower than Google's. It is 35.69% compared to Google's 32.11%. As of March, Apple had a profit margin of 29.66%.
At the All Things D conference held in late May, Apple CEO Tim Cook hinted at even more innovations to come and they directly related to its prized iPhone. Cook noted that the changes were in the works to improve the Siri and Facebook experience.
Cook refused to go into details. The release date for the iPhone 5 is still unknown. Many are bandying about ideas, including the date being some time during the third quarter of this year.
The phone is rumored to have a 4" screen, a dual-core processor and an 8 megapixel camera. Impressive, but now let's take a look at Samsung and its just released Galaxy S3. One of the things that took me aback is its price. It retails for a whopping $799 to $899 depending on the country it is sold in.
While not quite like Apple's Siri, Samsung's Galaxy S3 features S Voice, which responds to the users words. So you can tell it to answer the phone or take a photo. It has a 4.8" HD screen, and comes with the Google Android Ice cream Sandwich operating system. It has a lighting-fast quad-core 1.4 GHz processor, and a gig of RAM. It also has an 8 megapixel camera, and HD video recorder.
All of this information about the specs of these phones may bore the average person, but it is the stuff that drives the enormous sales for these companies. And now their rivalries are reaching epic levels. This is especially the case as Apple and Samsung jockey for the number one position in the smartphone manufacturing space. I think that their latest products will play a major role in shaping which will rule the industry, and which may lose market share. As already mentioned, we've seen this happen countless times before in the tech sector. We're watching it now with the seemingly inevitable demise of RIM and its Blackberry.
Motorola Mobility's (struggles led to it being a prime candidate to be acquired, and Google stepped up to the plate and bought it. The deal closed last month. Now Google will be able to make its own phone and install its prized and popular Android operating system on it. It will be interesting to see how it will impact the smartphone market.
Both Apple and Samsung may be in for a rough time this year in moving their products. Research shows that smartphone sales declined during the first quarter of 2012, and that the trend could continue for the remaining quarters of the year.
Samsung may buck the trend considering that it took 10 million preorders for its Galaxy S3. The phone was launched in markets outside of the U.S., like in India and the U.K. Samsung already took the top spot from Nokia during the first quarter of this year. Nokia had held the top spot since 1998. Nokia's revenues reflect the decline in demand for its products. These companies are only as strong as their next innovation. For mammoths like Apple and Samsung, the release of new smartphones that are innovative, but still profitable, will be key to their success.
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