There's a lot of noise today regarding Samsung's (SSNLF.PK) new position as the leading manufacturer of smartphones. Apple (AAPL) is currently down as investors are biting their nails, but unjustly so. I analyzed Samsung's recently released quarterly report which was impressive; not because of its 81% increase in net income, but through its mobile market expansion which led to an 86.4% increase in mobile sales.
This report has become a troubling figure for Apple investors, so I began analyzing the situation. As shown in Samsung's financial report, market demand in developed countries for Samsung's smartphones has decreased, but demand in China helped push Samsung to its record earnings. Now, how much of a threat is this to Apple? Interestingly enough, it's not Apple that should be worried, but Nokia (NOK), since most of Samsung's current 25% market share in China was snatched from Nokia.
Currently, Apple's iPhone and Samsung's Galaxy, running on Google's (GOOG) operating system, are controlling 90% of the high-end smartphone market share, which is projected to remain nearly the same at 88% by 2013. As we've seen with both Apple and Samsung's earnings reports, China has become the X-factor in driving up earnings to new records. The recent surprise in high demand have led analysts to predict smartphone sales increasing an additional 20-30% this year.
There's some information to keep in mind while analyzing the current risk Samsung poses to Apple. The recent earnings reports released by Apple and Samsung report on earnings during the same time period. This is crucial because it allows us to see if Samsung really is a threat to Apple. By cross-analyzing the earnings from Apple smartphone sales to Samsung smartphone sales, we can understand what's really going on.
Apple's recent report surprised even the most optimistic Apple investor. iPhone sales were still up 85% Q/Q driving up mega value for Apple's shareholders; Apple even experienced increased demand in developed markets, whereas Samsung experienced a decline. Apple's mobile sales in Asia-Pacific increased by 114% and will continue to increase as Apple grows its market share through market penetration. Many analysts are viewing Samsung's increase in smartphone sales as a negative sign on Apple's sales, but we've actually just been seeing both companies doing tremendously well by tapping into open markets like China. Apple poses the same competitive risk to Samsung as Samsung poses to Apple; however, both Apple and Samsung pose an unimaginably high risk to other smartphone providers like Nokia and Blackberry (RIMM), who have been experiencing consistently dwindling market shares. Currently, it's a race between Apple and Samsung to build a strong customer base as quickly as possible in China. With many demands driving up iPhone and iPad sales, I view Apple as continuing to be a leader in the mobile industry by providing its highly demanded products to global markets previously untouched.
Disclosure: I am long AAPL.