Google (NASDAQ:GOOG) Android has long been the market share leader on the global stage, with Samsung (OTC:SSNLF) being one of the few manufactures to pose a legitimate threat to Apple (NASDAQ:AAPL). In the last quarter, however, Samsung saw a 15% sequential decline in operating profits, or a 25% decline from the same quarter a year earlier. A major stumble for the leading Android smartphone maker might suggest that another OS is on the rise, but a recent report from research firm IDC showed that the first quarter of 2014 saw Android market share continuing to grow, while iOS slipped.
It has been no secret that Google has long been concerned about the power that Samsung has begun to wield within the Android universe. While strength for what has become the standard bearer for premium Android smartphones is preferable, Google shareholders should not see Samsung's issues as a negative. Furthermore, any weakness in Google shares that lingers as a result of the negative news should be seen as a buying opportunity.
Apple's Threat to Samsung
As was pointed out in a recent article on The Street, the pending release of the Apple iPhone 6 is only likely to exacerbate Samsung's problems. One of the key points of differentiation for the Galaxy line has been the availability of larger screens. The iPhone 6 is expected to offer two larger screen sizes, thus closing this gap, and placing, in the words of IDC's Ramon Llamas "the writing on the wall" for Samsung. Apple has been surging lately, with continued room to run, and this strength will likely be a negative for Samsung for the next several quarters. In fact, the company has lowered guidance for the second half of the year.
Beyond Apple, Samsung is facing pressure from other Android smartphones. Llamas also points out that both LG and Google's Motorola are currently offering strong competition at the premium end of the Android market. At the low end, Chinese manufacturers are becoming a serious threat to Samsung. The IDC report explains: "Samsung leads in the Android camp, while the rest of the pack is quickly being made up of Chinese vendors. Huawei, Lenovo, Coolpad, Xiaomi, ZTE, and OPPO were all part of the top 10 Android vendors in the first quarter of 2014."
The Impact on Google
The release of a larger iPhone is likely to have a negative impact on Google as a whole in the short term. The same IDC report points out that "Larger 5-7" Android devices grew to 84.5 million in 1Q14, which was 36.2% of all Android shipments globally." This means that one third of Android phone sold were differentiated by the one feature that Apple is looking to neutralize with the iPhone 6. Apple is expected to have a typically strong fourth quarter, which could have a negative impact of shares of Google.
If you look at the bigger picture, however, a greater balance of power in the Android ecosystem is a positive for Google over the medium and long terms. The unknown factor is how the growth of low-priced Chinese options will impact Google's profitability. This should be carefully watched over the next several quarters.
Google shares have been strong over the past quarter, but have been flirting with an important technical support level just above $570. Particularly if the stock can hold this level, shares have plenty of upside from here. Apple's fall releases will put pressure on Google shares, but ultimately, Google is well positioned and weakness should be treated as a buying opportunity.
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