The giant leap in market share that Samsung (SSNLF.PK) has made in the smartphone market over the past few years is notable, and has wounded Apple (AAPL). It is quite clear that their flagship Galaxy S branded phone has stolen both some of the pizzazz from the Apple iPhone in addition to users.
However, Tim Cook must today be sitting in Cupertino with his feet kicked up on his desk enjoying the most relaxing day he has seen in a long time.
Samsung fired their latest salvo yesterday in the smartphone war to dethrone Apple, and it simply met expectations. Apple can attest all too well that simply meeting expectations is not good enough these days.
More importantly Samsung decided to go full bore mini tablet with the screen size of their new flagship S4 phone at a whopping 5in. Why do this when you already have the Galaxy Note product at 5+ inches?
Apple hopefully this year will come to grips with the fact that just having an iPhone is not enough anymore. When they released the iPhone 5 with a 4in screen, this was by itself, a significant jump from the previous screen size of 3.5in. Many, including me, would like to see a larger iPhone. From a company perspective, however, I think Apple did the right thing not jumping straight to a 4.5in phone or bigger. The adage if it is not broke do not fix it probably was foremost on Apple executives' minds. In hindsight, I do think they have lost some sales by not having a larger phone in the marketplace. Maybe more importantly they laid the groundwork for easing their existing user base into a larger size phone. Going from 3.5in to 4.5in within one generation of phone upgrades would have been a stretch. It might have been too much for the purist who liked the iPhone just the way it was.
Samsung's Mistake Will Be Apple's Gain
Samsung in my opinion made a monumental mistake with the size of the S4. Additionally they let the hype surrounding this release get out of control. It was impossible to meet expectations. The stock prices of Apple and Samsung have moved inversely today. If you are a Samsung executive who just unveiled your latest flagship product you're not that happy with the way your stock price moved. Sure the phone comes loaded with lots of new features that sound neat like being able to use your eyes to scroll while reading. However, there is nothing earth shattering in this product that should make an iPhone user jump to the S4. Samsung had their run last year at converting iPhone users to the Galaxy product. This latest offering seems to be a sign that Samsung will have more success drumming up business from other Android system providers than stealing more iPhone users.
It is Apple's Move Now
Last year clearly some iPhone users yearning for a bigger phone left for the larger Galaxy S3. This year Apple has the chance to poach those same customers back. Consider that a broad swath of smartphone users felt like a 3.5in or maybe even a 4in iPhone was too small. There is an equally large population of users who do not want to walk around with a 5in skinny brick in their pocket either. Apple has the opportunity to placate their existing customers by introducing a larger phone this year. They can then set about dominating the market in the sweet spot of phones that are at or slightly larger than 4.5in.
Very few, if any, would argue that the Android operating system is a better system than iOS. Today there are 4,295 versions of Android on active phones in the market (only slightly kidding). Most new Android phones do not even ship with the latest operating system version. The S4 will ship with the latest operating system, which is expected to be out of date a month after the phones are in the market. For Google, you have to wonder when partners will finally get fed up with working with operating system scraps. When at the same time Google branded products are conveniently released at the time of operating system upgrades. This fragmentation within the Android market further adds value to the control and stability Apple exerts over the iOS operating system and its upgrades.
I think Apple will seize the opportunity to launch a bigger phone and run with it this year. In doing so they will immensely expand their addressable market of smartphone users and their stock price will expand in concert.
This is the catalyst to buy Apple if you have been waiting on the sidelines. I just never would have thought the catalyst would come from Samsung having a self inflicted wound.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.