Move Over Apple: Welcome The New Tech Giant

| About: Samsung Electronics (SSNLF)

Samsung Electronics Ltd. (OTC:SSNLF) is giving Apple (NASDAQ:AAPL) a run for its money in the mobile phone market. According to a Gartner report, which I have extensively used in what follows, Samsung ended 2012 as number 1 in "both worldwide smartphone sales and overall mobile phone sales."

Three things stand out in the report by the Gartner analyst, Anshul Gupta.

  1. For the first time since 2009, there was a decline in overall mobile phone sales worldwide.
  2. There was a perceptible shift in consumer preference.
  3. Samsung is the number 1 mobile phone vendor of both smartphone and overall mobile phones.

Q4 2012 saw record sales of 207.7 million smartphones, which were up 38.3% from the same quarter prior year. However, this was not adequate to counter the weak demand for feature phones. With 1.75 billion units sold in 2012, worldwide sales of mobile phones dropped by 1.7% as compared to 2011.

Feature phone sales in Q4 2012 at 264.4 million units were 19.3% less year-on-year. Gartner analysts expect the trend to continue. Whereas they expect overall mobile phone sales to touch 1.9 billion units in 2013, sale of feature phones will continue to fall.

Samsung was the undisputed market leader with smartphone sales touching 64.5 million units, which were up by 85.3% from same quarter prior year. The smartphone component was 53.5% of 384.6 million mobile phones sold in 2012, whereas the comparable figure for 2011 was 28%.

A look at the chart below tells where other vendors stand in the mobile phone market.

(Click to enlarge)


According to the same report, between the two of them, Samsung and Apple hold 52% share of the global smartphone market.

Samsung and Apple

Samsung Electronics posted excellent results for the fourth quarter 2012 with an $8.3 billion operating profit, a record 90% increase over same quarter prior year. Most of it was due to year-on-year 50% growth in sales recorded by its telecom division, much of it driven by the increasing popularity of its latest offerings - Galaxy SIII and Galaxy Note II. The telecom division registered sales of over $29 billion.

Samsung sold 20 million units of its high-end Galaxy S III within 100 days of launch. The company recently announced that it had sold 40 million units, only two months after reaching the 30 million mark.

Apple sold 130 million smartphones in 2012 as against 385 million sold by Samsung. Despite Samsung's commanding market share, it is no match for Apple. Apple's operating profit for Q4 2012 (33.46%) is more than twice of Samsung's (14.45%). I am no Math genius, but these are interesting figures. Samsung sold thrice as many phones as Apple, but Apple made 2.5 times as much profit. So, if I average out the profits per unit phone, Apple makes 7.5 times as much profit per phone as does Samsung.

All through 2012, there was nothing that Apple could do wrong. However, instead of capturing market share, it was basically dominating mindshare, which allowed it to return results that were at the least mind boggling. Samsung may lead in numbers but is by no means near Apple's 25.35% profit margin. Here again, Samsung's profit margin is less than half at 11.86%.

Samsung is among the few mobile phone vendors that have been able to make significant profits from Android OS, which is actually owned by Google (GOOG) simply because it has been able to offer almost all that Apple's iOS ecosystem has to offer.

Samsung has been keeping up the pressure on Apple by launching new products and its Galaxy range was able to catch the fancy of high-end consumers. Apple, on the other hand, kept on coming up with new versions of its existing offerings. Apple has now launched iPad Mini. Too many versions of the same product carry a risk of "consumer boredom."

Samsung already enjoys a dominant position in China with 29% market share. Although Apple is not much behind with 21.8%, the important point is that Samsung has a relationship with China Mobile (NYSE:CHL), the world's largest mobile service provider, whereas Apple doesn't.

Number 3 - Does it Count Anymore

The Gartner report also mentions that "no manufacturer that can firmly lay claim to the No. 3 spot in global smartphone sales." Huawei, with good numbers in fourth quarter, was able to reach the number 3 position for the first time in 2012 by selling 27.2 million smartphones.

However, the success of Samsung and Apple is based as much on the quality of their products as it is on the strength of their brands. While Nokia is number two in overall mobile phone sales, Samsung commands 42.5% of the Android market and the next competitor has just 6% share. Android, although a Google product, has almost become synonymous with Samsung's Galaxy.

Competition is expected to accelerate in 2013, with Sony (SNE) and Nokia (NOK) gearing up and flexing their muscles to grab a bigger piece of the mobile market pie. Nokia's market share has been dropping significantly and at 18% it is at its lowest. On the strength of good customer response to its latest offerings, Asha mobile and Lumia Windows 8 phone, Nokia was able to sell 39.3 million units of smartphones worldwide. However, this was lower by 53.6% from 2011.


Regardless of financials, the sales figures clearly indicate that Samsung is the new tech giant. On the stock market front, after the launch of iPhone 5 on September 21, 2012, AAPL stock has fallen 35% as hedge fund managers reduced their stake.

Apple, the tech giant for long, has suddenly faced real competition in this fight. While nationalistic pride may still swear by Apple, it has not made as great an impact in the overseas market. The company that could do no wrong in the year gone by seems to be doing nothing right now. There was a time in the late 1990s when Apple almost went bankrupt. That probably is a reason why it holds so much of cash in its balance sheet today. As I said before, this cash needs to be put to better use.

Both Samsung and Apple are dominating players in the smartphone market, which is where the next story in mobile phone market is being written. Apple has proved many an analyst wrong before and there is no knowing when it will spring a surprise. It may be wrong to bet against Apple, but Samsung has the momentum right now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.