The past year has seen Samsung (SSNLF.PK) gain a lot of smartphone market share. The release of Galaxy SIII last year saw Samsung take a decisive lead in the smartphone market, selling almost twice as many smartphones as Apple (AAPL) in both Q2 and Q3. As a result, its smartphone market share doubled to more than 36% in Q2 2012, from about 18% during the same period last year. We believe that the big market share gains that Samsung has achieved are, for the most part, a result of the number of low-end Android smartphones it has flooded the markets with, both in emerging as well as developed markets.
However, Samsung’s superiority in low-end smartphone market was long foreseen, considering the company’s scale and the market flooding strategy it has used right from the start. However, what is relatively new is that it has managed to leverage the huge following garnered with the wide array of Android choices to start challenging Apple in the high-end of the smartphone market.
Samsung recently announced the sale of its 40 millionth Galaxy SIII smartphone, just two months after hitting the 30 million mark. If we look at sales immediately after launch, almost 20 million SIII units were sold in only 100 days of its launch. This may be about half of what Apple managed in the quarter when the 4S was launched, but it should be kept in mind that a portion of Apple’s sales included the older versions of the iPhone (whose prices were brought down subsequent to the 4S launch) as well. Also, the Galaxy S series is only in the third-generation compared to the iPhone 4S which was a fifth-generation product, meaning that Samsung had a comparatively smaller base of Galaxy owners to upgrade than Apple had with the 4S.
The incredible success that Samsung has had with the new flagship Galaxy S points not only to the rapid pace of growth in smartphone sales worldwide, but also the company’s growing presence in high-end smartphone market – a segment that has long been Apple’s hegemony. Along with SIII’s popularity, Samsung is also likely to have benefited from sales of Galaxy Note II, launched during the holiday season. With the Galaxy S4 to be launched later this year, we expect Samsung to carry the momentum into 2013 as well.
Chipset And Displays To Ride Mobile Growth
The smartphone market showed significant growth in 2011, and given the 42% year-over-year growth rates seen so far, 2012 final results will likely show that it was a strong year. Despite some remaining macroeconomic uncertainty, the consumer shift towards smartphones continues to be strong. At the same time, tablet growth is picking up serious momentum. Gartner estimates that tablets grew by over 250% in 2011, and will continue to grow rapidly for the next few years, to reach about 370 million unit sales by 2016.
Given the high growth rates being seen, we expect Samsung to benefit hugely from the ongoing transition to mobile. A big reason for this optimism is that Samsung is increasingly using its own chipsets in its smartphones. For example, the highly popular Galaxy SIII and Note II use its Exynos line of chipsets, which the company is looking to use in its forthcoming Galaxy S4 as well. In addition, there are signs that chipset prices are recovering after a two-year decline. However, Apple’s decision to gradually move its component orders away from Samsung could have an adverse impact if Samsung doesn’t manage to make up for that loss with sales to its own smartphone division.
Displays is another division that should be bolstered by the growing mobile sales. After spending all of 2011 reporting losses while coping with an industry-wide oversupply and the eurozone debt crisis, which crashed demand for TVs, we expect Samsung’s LCD display prices to have risen by 7% for the full year. This, in addition to the growing sales of OLED displays, driven primarily by the sales of its own mobile devices, should help it continue its much improved performance in the last quarter of 2012.
Disclosure: No positions.