Apple (AAPL) and Samsung (OTC:SSNLF) not only dominate the OEM handset market, they account for 100 percent of all profits. New data from Canaccord Genuity shows that the two tech powerhouses captured all the profits from the sector in the first quarter 2013.
What this means is that other manufacturers like Nokia (NYSE: NOK), Sony (NYSE: SNE), and Motorola (NYSE: MSI) (owned by Google) did not turn a profit at all. Apple garnered 57 percent of all handset profits for 1Q, while Samsung grabbed the remaining 43 percent. That's an improvement for South Korean-based Samsung, which took in just 28 percent in 4Q 2012, compared to 72 percent for Apple.
The numbers tell the story
In 4Q 2012, OEM operating income for Apple came in at $12.264B, with a 40 percent operating margin. That equates to 72 percent of the total market. For the year, operating income was $35.903B, with a 41 percent operating margin, or 69 percent market share.
For Samsung, 4Q 2012 OEM operating income came in at $5.031B, with a 20 percent operating margin and market share of 29 percent. For the year, operating income was $17.458B with a 21 percent operating margin and a market share of 24 percent.
Compare that with HTC (TPE: 2498), which came in with an operating income of just $20M for 4Q, a one percent operating margin and 0 percent market share, and BlackBerry (NASDAQ: BBRY), with a negative $175M operating income, an 11 percent operating margin, and less than one percent of total market share.
Even more to the story
Digging deeper, the Apple iPhone 5 was the bestselling smartphone for providers Sprint (S), AT&T (NYSE: T), and America's largest wireless network, Verizon (NYSE: VZ), between the months of January and April. For Samsung, the Galaxy S3 led the pack from January to March at T-Mobile. Samsung sales took a hit however in April when T-Mobile began offering its customers the iPhone 5.
Samsung fights back
Samsung hopes to turn the tables even further with the release of its new Galaxy S4. Starting at $249.00, Samsung has added such innovative features as a vibrant new 5-inch screen, with full HD display and an enhanced camera.
On top of that, the South Korean electronics company has been cleared to start selling its phones to the US government, even the Pentagon. The new Galaxy S4 is the first Samsung handset to be equipped with the enhanced security feature, Knox. Knox offers the highest-level encryption capabilities, even a VPN feature. Approval by the Pentagon means that the new Galaxy S5 can be used by all networks in the Department of Defense.
Apple plans for the future
For Apple, the tech company that never stops moving forward, the rumor mill has it that the company will be updating the iPhone 5 with the new iPhone 5S, but most experts are more excited about the anticipated release of the new iPhone 6 sometime next year. Any upgrades will certainly address the problem with Apple Maps, but most agree that now with the release of the Samsung Galaxy S4, Apple is going to have to up its game.
What this means for Apple share value moving forward
Apple is way off its all-time highs and this could signal a good buy for the Cupertino-based company. Already Apple has rebounded from its lows of $385.10 on April 19, trading now in the $450 range.
So is now a good time to buy back into Apple? While some may argue that Apple shot up by 63 percent in just 9 months on momentum alone, there is evidence to suggest that much of the gains were based on fundamentals as well.
In the time leading up to the rise of Apple stock, the much anticipated iPhone 5 was on every investor's mind. And the iPhone 5 did not disappoint. Although it might have eventually missed Wall Street expectations slightly, still, it sold 47.8 million units in 4Q 2012. That was up from 37 million iPhones sold in 2011 and just 26.9 million in 3Q 2012.
For investors who still like Apple, strong sales in its flagship device and continued domination of the market place are both good reasons why the stock is a good buy in the mid $400 range. This, plus the fact that it's well off its high of $705.07 set on Sept. 21 should give the stock plenty of room to the upside. Just one note of interest: for those who don't think Apple got caught up in a momentum play in 2012, Sept. 21 was not only the day its share value peaked, but also the day the new iPhone 5 was released. Mere coincidence? Perhaps not.
The future for Samsung
Samsung is gaining fast on Apple, which once had a virtual lock on the handset industry. As stated earlier, Samsung moved up from a 28 percent market share in 4Q 2012 to 43 percent in 1Q 2013. Now with the release of the new Samsung Galaxy S4, the ball is definitely in Apple's court. As stated earlier, Apple is now under pressure to release the upgrade for its iPhone 5, the iPhone 5S, and even more pressure to launch the next generation iPhone 6. That pressure is coming directly from Samsung.
Is Samsung a good buy at current levels?
First of all, Samsung stock trades on the South Korean Stock Exchange. While it's true that Samsung trades on the Pink Sheets here in the US, at over $1400 a share, that doesn't sound like a good deal. On top of that, Samsung only trades an average of 60 shares per day here in the US.
But Samsung seems a good bet to say the least. Quickly eating away at Apple's share of the handset market, thoroughly dominating the lower and mid-range marketplace, and now with the release of the new Galaxy S4, an investment in Samsung seems like a solid play.
On top of that, Samsung just posted a record profit of $6.5 billion for 1Q 2013. That's a net gain in earnings of 42 percent from a year earlier, and up over 2Q 2012 by half a billion. Samsung is surging fast.
The company reports it shipped 70.7 million handsets for 1Q. That's up 61 percent over last year. For the same period, Apple shipped just 37.4 million units. While Apple might be a good investment on the bounce, Samsung seems the smart play based on fundamentals.
To find out how to invest in Samsung, contact your broker. Ask about the South Korean Index Fund (NYSE: EWY). This fund is currently compromised of 22 percent of Samsung shares.