Samsung (SSNLF.PK) announced its highly anticipated Galaxy S4 smartphone this past week in an event that shows how drastically the smartphone market has shifted in the past year. In the past, non-Apple smartphones would get brief media coverage, if any. For example, there was no real anticipation leading up to the Galaxy S III announcement and the major publishers merely had a brief recap of the launch. In a surprising turn of events, the S4 received a similar level of attention as an Apple (AAPL) product launch. There were some striking contrasts between Samsung's event and a typical Apple event and the consensus is that the Samsung announcement was lackluster with regard to both presentation and phone specifications. HTC's president was less kind and he called the presentation "embarrassing." Opinions here on Seeking Alpha have been mixed: some believe that Samsung leapfrogged Apple while others believe Samsung missed an opportunity to push the envelope. I stand firmly in the latter camp and will explain why I hold this opinion.
The phone's hardware received incremental upgrades as the battery, screen, RAM, and camera all had specification bumps across the board. Samsung has been relying on "bigger is better" in the past few years and continues to use its large screen size as the key differentiating factor from the iPhone. I personally believe that five-inch smartphones are pushing the size limit a little far but there is no denying that there is a demand for phones of that size. Now that Samsung is approaching the limit for the Galaxy's screen, the only real choice is to utilize software to drive innovation. Unfortunately for Samsung, it is a hardware company and not a software company. Samsung's TouchWiz UI is the main selling point of the new Galaxy phone and I would have to categorize most of the upgrades as gimmicky. For example, one feature is the ability to take a picture with the front and rear cameras at the same time - is there really a need for that? Is that a feature that is going to drive sales? Samsung's Vice President of Portfolio Planning, even stated that all non-hardware related features announced will be available on the Galaxy S III - is there a real reason to upgrade? Apple at least made Siri exclusive to the iPhone 4S when it launched.
Another questionable feature is AirView, which allows users to utilize gestures an inch over the phone, instead of actually touching their phone. I can think of limited uses for this and early reviewers said that the feature did not work as intended. This is a great feature for a 50-inch television, but not for a five-inch smartphone. In conclusion, the Samsung Galaxy S4 is really just a Galaxy S III 2.0. Apple haters lambasted the company for releasing the iPhone 4S and Samsung did exactly the same thing with this incremental upgrade. Essentially it appears that Samsung is targeting weaker Android competitors rather than attempt to out-innovate Apple.
(Source: Yahoo! Finance)
As the Wall Street Journal highlights, the Galaxy S4 announcement hardly mentioned Google (GOOG) or Android. I have to commend the Wall Street Journal as the paper has nailed its coverage of the Google-Samsung relationship. Similar to the relationship between Apple and Google, the two firms have been increasingly adversarial. Apple began to distance itself from Google around 2011 as its iOS platform grew. Initially it was subtle with Apple allowing users to switch the default search engine on the iPhone but the rebuking grew more aggressive as Apple pulled the Google Maps app in favor of its in-house solution. The same pattern is emerging with Google-Samsung.
First Samsung is touting its newest smartphone with software features exclusive to Samsung and next Samsung will be releasing its own smartphones running its own Tizen operating system. Samsung is the largest Android vendor with a 40% market share and is in a position to demand an increase in its share of Google's advertising revenue generated on its devices. Currently Samsung takes about a ten percent cut of the revenue but the WSJ indicates that it is looking for more. Google is not sitting idle as Samsung grows more aggressive and is increasing its development with recently acquired Motorola to reduce its reliance on Samsung. Google has historically strived to maintain parody when releasing updates to Android but may increasingly favor its own devices over Samsung's latest phones. This strategy might benefit Google over the long-term but Apple should be able to capitalize in the increasing fragmentation of Android.
Last week I performed an analysis of Google versus Apple and highlighted how Google is overvalued/Apple is undervalued on a relative basis. The combination of a lackluster Samsung Galaxy S4 and increasing tension between Samsung and Google should benefit Apple. As you can see from the chart above, Apple outperformed Google by five percent this past week and it appears that the market may be slowly questioning the relative valuations for the two companies. Google surpassed Apple as top mutual fund holding this month but it will be interesting to see if Apple can regain the crown this year. I still believe that Apple is affordably priced at this level and that Google is starting to look expensive; therefore, it may be prudent to rebalance the technology holdings in your portfolio.
Before I close I wanted to mention that starting today you will be able to trade mini options in both Apple and Google. These mini options will be for ten shares rather than the traditional one hundred, which will allow an entirely new group of investors to trade options on these expensive underlying securities. I will be back next week with my usual Apple option trade articles and discuss how these new mini options can be profitably used to generate income on a weekly basis. Stay tuned.
Additional disclosure: Author is long AAPL June $500 Calls. Please refer to profile page for disclaimers.