Earlier last week, Apple (AAPL) released its updated iPhones – the iPhone 5S and iPhone 5C. Many believe that Apple has lost its innovative streak with the passing of founder Steve Jobs. Many of the company’s new products may be testimony to this belief as they feature rather simple upgrades instead of the radical new developments that consumers expect Apple to deliver. Add to that the fact that some of their key features like the Map application and Siri have failed to deliver.
In addition, while Apple’s iPhone may be the biggest selling smartphone in the U.S., it is still a distant second in the worldwide market. According to a recently released report by Gartner, during the second quarter of 2013, smartphone sales grew from 153.77 million units to 225.36 million units. South Korean electronics giant, Samsung (OTC:SSNLF), was the clear leader, with 71.38 million units, accounting for 31.7% of the global market. Apple came in second with 31.9 million units, or a 14.2% market share. Compare that with the previous quarter, when Samsung had 29.7% and Apple 18.8% of the market. Slowly but surely, Samsung is widening its lead, and Apple’s new phones will have a tough time catching up. The main advantage that Samsung is capitalizing on, today, is its much better channel coverage in the low end of the smartphone market, especially in the emerging geographies.
Originally founded as a trading company in 1938, Samsung is now the largest business conglomerate in South Korea. It offers a wide range of products that range from insurance, shipbuilding, electronics and construction, to name a few. Of late, Samsung’s electronics and semiconductor business has become its core business operation. Samsung’s biggest advantage over other players like Apple and Google (GOOG) lies in its diversification. Not only is the company a leader in the smartphone segment, it is also the second-largest vendor in the overall semiconductor market worldwide.
For the recently ended quarter, Samsung saw revenues grow from $40.71 billion a year ago to $47.54 billion. Earnings were also significantly up at $41.61 for the quarter, compared with $29.06 a year ago. But analysts are not too happy with the performance. During the past quarter, Samsung has increased spending on R&D and marketing. Despite that, sales of the Galaxy S4 phone have been less impressive. Samsung does not disclose segment sales, but analysts estimate that it sold nearly 20 million units of the latest S4, falling short of market expectations for the phone.
Samsung’s Product Lineup
Apple believes that Samsung has grown into its position by copying several of its patented innovations. In fact, last year, the courts had awarded Apple $1.05 billion in damages by ruling that Samsung had violated patents. Since then, through appeals, damages have been reduced and several patent copy issues are being re-examined. While courts deliberate, Samsung has continued to release newer products.
Last week, Samsung released Galaxy Note 3, its phablet, which is a smartphone form factor describing devices with a screen between 5 and 6.9 inches (130 and 180 mm) in size and Galaxy Gear, a wearable device. Galaxy Note 3 is a slimmer, lighter phablet that will feature a classier look with a matte leather finish on the back and sides, Android 4.3 OS, a 13 megapixel rear camera with Smart Stabilization, a 2 megapixel front-facing shooter, 3GB of RAM, and a smarter stylus in the S-Pen that when pulled out of its storage automatically activates a semicircular menu for quick access to the apps on the phone.
Galaxy Gear is a device worn on the wrist that lets users send messages, receive phone calls, and even take photographs directly instead of using their phones. By releasing Gear, Samsung became the first global mobile computing company to release a smartwatch, beating both Apple and Google in the endeavor. Initially, Gear is being launched to work with the Android 4.3-based Galaxy Note 3 phablet or Galaxy 10.1 tablet as the company is still sizing the market. Samsung plans to use Gear to increase penetration in the higher end of the market. It even priced it at a relatively high price of $299. It is still too early to assess whether the product is successful. Some reviewers believe that the product is just a PR stunt considering that it has a very poor battery life, limited features, and does not support the wider range of Samsung products. But there are others who believe that with innovative products such as Gear, Samsung is trying to woo Apple’s loyal customers. Meanwhile, the market waits for Apple’s iWatch, expected to be released next year, and for Google to finalize its plans on Google Glass.
According to researcher Visiongain, the wearable technology market is projected to be worth $4.6 billion by the end of 2013. Analysts also believe that growth in the smartphone market may be slowing down considering that within the U.S., nearly 70% of phone users were using smartphones. Furthermore, even Samsung is being hurt by the low-cost smartphones being launched by Chinese manufacturers. By releasing wearable devices, Samsung plans to get the early-mover advantage in what could be the next big mobile computing trend.
Samsung’s stock is trading at 906,000 Korean won (~$628.76) with a market capitalization of 227.39 trillion won (~$0.158 trillion). It touched a 52-week high of one million won (~$694.06) in May 2013.