Samsung Galaxy S4 Wouldn't Be Great Without These U.S. Companies
Tedra is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Samsung’s (NASDAQOTH: SSNLF) Galaxy S4 smartphone is all the rage among buyers right now, beating out all of its competitors, including Apple, in terms of sales last month.
Canaccord Genuity released a finding last week that Samsung’s Galaxy S4 had outsold Apple’s iPhone 5 at every major carrier except AT&T. Before Samsung unveiled its flagship smartphone earlier this year, it had been second to Apple at AT&T, Verizon, Sprint and T-Mobile in terms of sales. This news was not a huge surprise, considering Samsung’s latest flagship device has been setting records in the weeks following its release in April. Still, overthrowing Apple from a top ranking is no small feat.
Samsung deserves the credit for being able to increase its market share in the mobile space, however, its products would not have been so wildly popular had it not been for several U.S. suppliers that the Korean company chose to use in building its devices. I highlight two of them here as noteworthy investment plays to consider if you want to ride the wave of Samsung’s success.
Inside of the Samsung Galaxy S4 is Qualcomm’s (NASDAQ: QCOM) Snapdragon 600 chip. As pointed out by zdnet, “while Samsung is hoping that the Galaxy S4 will bring in the dollars, the real winner seems to be Qualcomm, having scored multiple wins inside the new smartphone.”
In addition to the Galaxy S4 smartphone, Qualcomm is also thought to be supplying an upcoming smartphone from Samsung. Word got out last week that Samsung will unveil a mini Galaxy S4 later this month that will use the use Qualcomm’s Snapdragon 400 chips.
Landing such jobs has boded well for Qualcomm, which has in turn worked out well for investors. Qualcomm’s returns to investors are up 7.22% over last year.
Something to pay attention to, however, is the stock’s recent slump. Since mid-May, the chip maker’s stock has been declining and was trading around $62 at the time of writing. This slump may provide an ideal entry point as I see the company rebounding, especially after it releases its next quarterly earnings report on July 24. Those will give us an idea of how the Samsung partnership for the S4 impacted its top and bottom lines.
No monkeying around
If you are like most smartphone owners, there is one event that haunts you: dropping the device and damaging the screen. Samsung and other device makers sought to ease this worry and looked to Corning (NYSE: GLW) for help. Samsung’s S4 sports Gorilla Glass 3. Simply put, this screen is incredibly tough, with one tech blogger called it nearly invincible as he showed a photo of someone swiping it with a butter knife and leaving no scratches. The new glass technology is said to be three times more scratch resistant than previous versions. The Galaxy S4 is the first phone to use Gorilla Glass 3.
While landing the chance to protect Samsung’s devices with its Gorilla Glass is a major coup, I’m not sure how much revenues from this source will help Corning. Its growth and valuation numbers are troublesome. Last year, its earnings growth was -35%, and it is expected to be just 1.68% this year.
There is a threat too from another technology -- sapphire -- that is stronger than Gorilla Glass. However, the price of the stronger product is extreme, making it unfeasible for mobile device makers to use it and keep their margins in check.
For Corning, the fact that the price is too high – for now – is good, considering that its Gorilla Glass has become “an important cash cow for it in the past few years,” as noted by Fool Writer Evan Niu. Corning’s specialty materials segment makes up 17% of it sales, which is up considerably up from the 6% of sales that the division accounted for back in 2009. When considering Corning as an investment, keep in mind its vulnerability to others who threaten its popular screen technology.
Both Qualcomm and Corning face increasing competition among mobile device manufacturers trying to improve, or even just maintain, their market share in the space. And while Samsung’s device is all the rage now, keep in mind how fickle consumers can be when it comes to long term commitments with their mobile devices. Recent reports from analysts say the Galaxy S4 sales are already showing signs of weakness.
Who knows who will be the next darling of the mobile device world, but one thing is certain. Corning and Qualcomm stand to continue to be successful if they innovate products that will help improve mobile devices.
With the explosive growth of smartphones worldwide, many investors thought they would ride Corning's dominant cover glass to massive investment returns. That hasn't played out yet, as mobile growth has failed to offset declines in the company's core business. In this brand new premium research report on Corning, our analyst walks through the business, as well as the key opportunities and risks facing it today. Click here to claim your copy.
Tedra DeSue has no position in any stocks mentioned. The Motley Fool recommends Corning. The Motley Fool owns shares of Corning and Qualcomm. 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!