As smartphones outsell PC's, a trend that will undoubtedly continue into the future, the eyes of the savvy investor looks to the companies who are (and are set to) capitalize on such growth. The two names that stand out are Apple (AAPL), and Samsung (SSNLF.PK). Based on their track record of innovation and strategic implementation of products, I predict we will continue to see positive performance from both these titans, along with those companies that supply and align with them such as Qualcomm (QCOM) and Nvidia (NVDA).
The Current Picture
Both Apple and Samsung are expected to report record earnings for the first three months of the year. Samsung's powerful smartphone sales, along with the growing momentum behind the May 3 launch of the Galaxy S III has long been the force that has prevented even great companies like Nokia (NOK) from being a dominant player.
The two companies are responsible for nearly half of all smartphone units shipped. The interesting thing, however, is that Apple has reached this level with only one product, its iPhone - the most popular phone by units sold in the world.
Of course, to build such a recognized and marketable phone, it needs to be top of the line in just about everything. With support from world-renown chip makers such as Qualcomm, Apple boasts a sleek and functional phone for the right price.
Samsung, the world's largest tech company by revenue last year, also knows how to pack a punch into its products. With a solid partner in Google (GOOG) and the new Ice Cream Sandwich platform, and a 'one-better' quad-core processor (compared to Apple's A5X processor), the company can scale rapidly by creating multiple versions of its introduced product lines. This adaptability and cost-effective strategy serves to maximize profits and encourage sustainable growth.
With both of these companies responsible for almost 25% of the global market share of smartphones, how do they interact with each other and is it possible for others to compete effectively? In my opinion, this is a 'pulling away from the pack' situation for both companies. As others will work hard and struggle to offer alternatives, these two can narrow their competitive focus on each other.
A Good Fit
True business - especially a multi-billion dollar business - can be cutthroat. The quest to rule has resulted in several clashes between Apple and Samsung. In April 2011, Apple sued Samsung over smartphone designs and patents. Samsung countersued, and their legal battle spread to courts in nine countries.
Outside of the courtroom, marketing strategy has also begun resembling a political race in all its 'smear campaign' glory. Samsung has lashed out with commercials that mock Apple enthusiasts. This strategy, it seems, was taken from Nokia's recent ad campaign for its Lumia 900. One ad in particular jokes that one man is happy his phone looks like everyone else's until a geeky girl shows that her phone is 'just like his'.
Even so, it is a working 'love-hate' relationship. Apple is still the largest customer for Samsung's component divisions, which make display screens and chips. Both companies have also partnered with each other in their fight against competitors like Verizon (VZ) and Microsoft (MSFT). This is, however, a reactive approach to growing strength in the unity of their opposition. AT&T's (T) financial and advertising support for Nokia's Lumia, combined with the Windows brand recognition called for an 'enemy's enemy is my friend' approach.
Samsung has the power of momentum behind it. Strategic marketing and timing for products are the two pillars that has moved it forward. With the backing of the Android OS and Google's record for innovation and improvement, some analysts believe the company could close to double the size of its smartphone shipments this year.
Also key to Samsung's growth is the interchangeability and adaptability of its products. Because it was open to multiple operating systems, it was able to wait and see which one would take hold and funnel more resources behind that. A smart move to pull ahead of Apple would be to capitalize on its differentiation. Continuing its already popular ad campaign, it could benefit from being the 'Apple Alternative'.
Apple isn't going anywhere. It was just last month that its valuation hit $500 billion. On the other hand, it will need to make a decision regarding continued competition in the smartphone market: The choice between remaining a single-offering, higher-priced player or opening up its products and entering the mid-range market. I do not foresee the latter because of its dominance in the tablet market. Apple shares were recently up nearly 60% for the year even though recent fluctuation has been a concern.
It also should be mentioned that the mobile phone industry has been characterized by fast-moving and quickly-changing product cycles. In other words, timing is everything. Companies must roll out updates, new products, etc, in order to maintain public interest, and missing an opportunity or staying 'out' too long can result in a slide. Both companies have the ability to do this - Samsung with its phone variations and Apple with its host of other products.
Samsung is expected to report its earnings on Friday and could show an 80% jump in net profit to around $4.4 billion. Apple reported on Tuesday.
Apple stock is currently around $561, a loss of about 1.7%. However, with a recent high of over $580 and a 52 week average of $644, I agree with the rating of most analysts as 'buy'. I also predict continued growth for both companies as they continue to do what they do best - make outstanding smartphones.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.