Samsung Galaxy Is No Apple iPhone Killer

Aug.11.12 | About: Apple Inc. (AAPL)

The Google (NASDAQ:GOOG)-Samsung Android versus Apple (NASDAQ:AAPL) iOS operating system phone war is quickly emerging as one of the greatest rivalries of today's generation. The hate, double-dealing, and grudging respect between Samsung and Apple is now comparable to Red Sox versus Yankees, Lakers versus Celtics, and Duke versus North Carolina. As evidence of Apple and Samsung's dominance, the once formidable Nokia (NYSE:NOK) and Research in Motion (RIMM) brands now teeter upon the brink of collapse. Even mighty Microsoft (NASDAQ:MSFT), with its infinite streams of cash, remains largely shut out of the smartphone duopoly.

The battle lines have been drawn as the smartphone market inevitably becomes commoditized over time. The speed and feel of the Samsung Galaxy and Apple iPhone are converging together. Only the most discriminating of technology aficionados can distinguish between these iOS and Android platforms. To protect market share, both corporations have waged war in the courts over patents, design, and internal documents. The obvious similarities between the Samsung and Apple platforms demand objective commentary. With all things Apple, a cadre of "fanboys" always emerges to defend what the New York Times describes as a "cult" against "haters" who relish in this corporation's apparent demise.

Apple is Still Cool

Apple still enjoys the halo effect of the late Steve Jobs. Over the past decade, Apple has changed the game for consumer electronics behind its steady stream of blockbuster hits. The Apple lineup is an integrated and closed ecosystem that includes the iPod, iMac, iTunes, iPad, and of course, the iPhone. Today, the technology complex remains hell-bent upon mimicking this product loop. In response, Google has unveiled its open source Android, Play, Plus, Search, and web-based applications that are compatible with various hardware. Google's model is more so accommodative for tech geeks who enjoy writing code and developing their own upgrades. Hollywood celebrities, hipsters, and teenage girls, however, do not exactly associate writing code with the word "cool." The Samsung Galaxy movement is for beta followers.

The smartphone is now as much of a fashion accessory as it is a communications device. As the smartphone market inevitably becomes commoditized, the "cool" factor is all-important to protect market share. At present, Warren Buffett would describe the Apple brand as a "moat."

Phone Specifications

The iconic Apple iPhone is now a staple of popular culture. Today's Apple iPhone 4S model is 4.5 inches in height, 2.31 inches in width, and 0.37 inches in depth. The screen is 3.5 inches diagonally and offers 960x640 resolution at 326 ppi. This small phone is easily palmed, which is ideal for taking calls, navigating the touch screen, scrolling through applications, and sending text messages. Weighing in at 140 grams, the iPhone's glass and metal casing lend the device its stylish, yet sturdy feel.

The iPhone 4S also serves as an 8-megapixel camera, 1080p video recorder, and audio player offering frequency response between 20 and 20,000Hz. A lithium ion battery powers up this smartphone for 8 hours worth of talk time, 40 hours of audio playback, and 200 hours at standby. In terms of iPhone 4S storage capacity, you may choose between 16GB, 32GB, and 64GB versions. At the Apple Store, unlocked (no service contract) iPhone 4S handsets price out at $649 for 16GB, $749 for 32GB, and $849 for 64GB. Verizon Wireless sells these phones for $199, $299, and $399, if you agree to the terms and conditions of a two-year service contract.

Technology enthusiasts, of course, are prescient of the looming iPhone 5 launch set for this Holiday season. The iPhone 5 is rumored to feature significant technical upgrades, alongside a more vertical look and larger screen. Download speeds will improve, as the iPhone 5 is likely to run on the 4G network. The iPhone 5 will sell at the same price points as today's 4S model. Sprint already offers the 4S at a discount, in anticipation of the iPhone 5 launch. All iPhone modifications, of course, will be measured against the formidable Samsung Galaxy.

The Samsung Galaxy SIII is the flagship Android phone. Paralleling its Olympic baton advertising campaign, the Galaxy is notable for its vertical presence. Galaxy SIII dimensions are 5.4 inches in height, 2.8 inches in width, and 0.33 inches in depth. At this size, the Galaxy is preferable to the iPhone for watching videos and playing games on its 4.8 inch screen featuring 1280x720 resolution. The Galaxy, however, is largely made of plastic, which gives it a flimsier feel.

Beyond superficial looks, the Galaxy SIII offers similar specifications to the iPhone. The Galaxy SIII features 16, 32, and 64GB (with microSD slot) in memory. This phone also features an 8-megapixel camera and high-definition video at 1080P. The Galaxy SIII runs on a dual-core Qualcomm S4 processor. According to Jeff Bertolucci and Information Week, the A6 processor for the iPhone 5 offers a performance advantage above the Galaxy SIII that "won't be too dramatic." Further, the haggling between iOS and Android operating systems is more so a matter of personal preference. Fan boys, of course, will argue that the Apple iOS powers the smoothest transitions and interfaces.

The Samsung Galaxy SIII prices out at $199 for 16GB and $249 for the 32GB at Verizon Wireless, in exchange for your acceptance of a two-year service contract. The Samsung Galaxy retails at a similar price point as the Apple iPhone.

In terms of specifications, the iPhone versus Samsung Galaxy war is a contentious draw.

The Bottom Line

On July 24, 2012, Apple released results for its third quarter, which ended on June 30. For the quarter, Apple sold 26 million iPhones, For Apple, the 26 million mark is a decrease from the 30 million iPhone units sold in Q1, but a healthy 28-percent year-over-year increase. Wall Street, however, was not impressed and immediately sold off Apple shares from $600 to $575 during the conference call. Amid this destruction in value, Apple executives circled the wagons to telegraph an idea that iPhone sales were relatively weak in anticipation of the looming iPhone 5 launch. Aggressive analysts, such as Horace Deidu, project that Apple will sell more than 100 million iPhone 5 units over the next year. In response, Apple stock quickly rebounded to today's $621.

At $621, Apple shares trade for 15 times earnings. Apple stock is relatively cheap, considering the fact that this corporation is averaging 66 percent average annual growth over the last four years. For Q3 2012, Apple posted $117.2 billion in cash and securities on its balance sheet. This position breaks down further into $125 per Apple share in cash and investments. With these financials, only an absolutely disastrous iPhone 5 launch would force Apple shares to crater and underperform the S&P 500. In all likelihood, the iPhone 5 release will transform your local Apple Store into a nightclub of hipsters jockeying to remain part of the "in" crowd.

When the smoke clears, the Apple iPhone will reclaim its position atop the smartphone market. With the spotlight back on Apple, shares will resume their stock path story towards the stratosphere.

Apple stock is a buy.

Disclosure: I am long AAPL.