5 Reasons Apple Makes Samsung Look Good
There’s no debating it: Apple (NASDAQ:AAPL) and Samsung (SSNLF.PK) are bitter rivals locked in battle at the forefront of the smartphone war. But, in a war that should simply be about having the best products that are the paragon of design and technology, things are never as simple as they should be, and Apple has been doing some things that make Samsung look good.
Bad blood with suppliers, carriers, accessory makers:
Recently, it became clear just how interdependent Apple and its suppliers are. When Apple shares went up, Suppliers like Foxconn (FXCNY.PK), Largan Precision, TPK Holding, and Radiant saw their stock pop up a little bit as well. When Cirrus Logic (NASDAQ:CRUS) reported a “net inventory reserve of $23.3 million,” $20.7 million of which was suspected to be due to decrease in demand for Apple products, Apple’s stock slide below $400 per share to a 52-week low. Those events made it clear to suppliers how interconnected their fate is with Apple, and some don’t like it. Foxconn is one of the biggest manufacturers of Apple products, but it could soon be cutting its dependence on Apple. Apple is also expected to have a long period without new products as well as tightening margins, and the lack of business and smaller margins are likely to get passed up the supply chain and frustrate Apple suppliers.
Apple may also be trouble for companies on the other end of production as well. Once iPhones are made, they have to be sold be carriers, but it seems Apple has problems in this arena as well. While the world has some 800 mobile carriers, only 240 of those support the iPhone, even though 500 have the technology to do so. Currently, the world’s largest mobile carrier, China Mobile (NYSE:CHL), and Japan’s largest carrier, NTT DoCoMo (NYSE:DCM), don’t carry the iPhone. These carriers and many others may likely see Apple’s terms a bit too demanding and one-sided, as they put a heavy burden on the carriers to subsidizes the expensive phones and guarantee a certain number of device sales. Since September 2011, Apple hasn’t been able to add more than a dozen new carriers to the list of those carrying the iPhone. Meanwhile Samsung is supported by nearly all of the world’s carriers.
Accessory makers are also irked with Apple because its latest devices have changed the way they connect and hurt the value of many accessories. Older iOS devices featured a wide, proprietary 30-pin port, and many accessory makers had to pay for licenses to include the proper plug to connect with these devices. It wasn’t cheap for those manufacturers, and it also gave Apple a chance to keep more control over the accessory makers. But, the newest devices made a sudden and unexpected shift to an entirely new connector port, called Lightning, that would not plug into the devices made with 30-pin plugs unless customers bought adapters. This not only affected accessory makers, but also customers, who quickly saw their stockpiles of iPhone and iPod accessories rendered almost useless if they wanted to continue using the latest and greatest devices. Accessory makers are now turning away from Apple in droves to use more universal wireless connection methods, like Bluetooth, which will work with more than just Apple devices. Meanwhile, Samsung — and even Microsoft’s (NASDAQ:MSFT) Windows Phone-powered smartphones — use more standardized USB ports that are far more compatible and manufacturer-friendly.
Apple’s smartphone timeline just doesn’t look like Samsung’s:
Recent rumors and even comments made by Apple Chief Executive Officer Tim Cook have made it look like the iPhone maker is a bit slow when it comes to releasing new devices.
KGI Securities analyst Ming-chi Kuo has a track record for accurately predicting product launches from Apple based on supply chain information, and he suggested late last month thata good number of product holdups would push back release dates. When Cook spoke during the earnings call last month, he said the company would have devices coming out in fall and in 2014, suggesting that the lack of new products that started after the launch of the iPad Mini could continue several more months.
Apple’s iPhone 4 was launched in June of 2010. It was later followed by the slightly revised iPhone 4S that was released more than a year later in October of 2011. The iPhone 5 emerged about 11 months after that in September of 2012. For comparison, Samsung’s Galaxy S 2 was launched in May 2011, the S 3 was launched in May 2012, and the S 4 in April 2013. It’s worth noting that these Galaxy devices are completely new phones, where as the iPhone 4 and iPhone 4S were nearly the same. Additionally, the Galaxy S devices are simply Samsung’s flagships, while the company also makes a whole slew of other smartphones that keep the calendar filled with new Samsung product launches.
On the eve of the Galaxy S 4 launch, Apple’s marketing chief Phil Schiller more or less disparaged Samsung and Google’s (NASDAQ:GOOG) Android in an interview. He criticized Android devices for being so fragmented that “you have to sign up to nine accounts with different vendors to get the experience iOS comes with.” He also suggested that Android devices had different elements coming from multiple companies, adding that Apple is responsible for all of its own mobile hardware. Although it is uncertain what Schiller meant exactly because Apple relies on many different manufacturers for parts like displays and processors. Schiller also added that the experience on Android devices just wasn’t as good as on iOS and the iPhone.
Schiller also pointed to a statistic about Android — that many devices are running on out-dated software — and extended that criticism to Samsung, suggesting that “the Samsung Galaxy S IV is being rumored to ship with an OS that is nearly a year old.” In reality, the S 4 shipped with the latest operating system, Android 4.2.2 “Jelly Bean,” which was only released earlier this year.
Weakening in the face of a strengthening Samsung:
For the first calendar quarter of 2013, Apple was still responsible for the largest share of profits in the smartphone market. Apple took $8.03 billion in operating income, giving it a 57 percent share of the total smartphone market’s profits. Samsung only had $6.02 billion, giving it a 43 percent share. But, Apple was down from the previous quarter, while Samsung was up. Apple dropped 15 percent from 72 percent in the December quarter and had operating income drop by over $4 billion. Additionally, its operating margin slipped from 40 percent to 35 percent. In the same time period, Samsung’s operating margin increased from 20 percent to 22 percent, while operating income rose about $1 billion and marketshare went from 29 percent to 43.
All this movement happened only several months after the launch of the iPhone 5 and preceded the launch of the Galaxy S 4, suggesting that the current quarter could see the tides shift even more dramatically.
Letting others set the curve:
Apple might have been the first manufacturer to come out with what people think of as the modern smartphone and tablet, but it seems to be slowly slipping when it comes to being at the forefront of those technologies that it did so much to establish.
For screens, Apple’s been trying to argue that the size of the iPhone 5 is perfect for a smartphone. But recently it seemed that Apple Chief Executive Officer Tim Cook left the door open for the possibility of making devices at different sizes, including one that could compete in the 5-inch arena. Samsung currently dominates that arena with its Galaxy Note devices. Cook said that competitors made trade-offs in order to release the larger devices and that he wouldn’t do the same while those trade-offs existed. This was likely in reference to the displays, as Samsung’s Galaxy Note 2 features a lower pixel density than the iPhone 5. However, Apple did release the iPad Mini despite it having a significantly lower pixel density than even the original Galaxy Note. It seems possible that Apple could eventually move into larger arena, but it would be late to the party.
Looking at the deeper product specifications, a clear trend emerges that shows Apple trailing the pack that it had once lead. The Samsung Galaxy S 2 was a fantastically popular phone that launched about 5 months before the iPhone 4S. It featured a relatively low pixel density of 217 pixels per inch, but had a 1.2-gigahertz dual-core processor, 1 gigabyte of RAM and an 8-megapixel camera. Despite coming out later, the iPhone 4S only beat the Galaxy S 2 in regards to pixel density, having a slower processor and half the RAM. Next out was the Galaxy S 3, which was a major step up from the S 2, coming in with a 306-PPI display, a 1.4 GHz quad-core processor, and 1GB of RAM. When the iPhone 5 came out about 4 months later, it only beat the Samsung device in terms of pixel density once again, but even then, it had a lower pixel density than the iPhone 4S. The Galaxy S 4 proved to be another major step up for Samsung, with the screen jumping to 441 PPI — far higher than any iOS device, or even MacBooks with Apple’s signature Retina displays — a quad- or eight-core processor, 2GB of RAM, and the first camera of the bunch to go above 8 megapixels, boasting 13 megapixels.
Given Apple’s upgrade path, it seems like that the next iPhone will just be an incremental step up from the current iPhone 5. If that is the case, it will likely fall even further behind Samsung’s flagship devices, which continue increasing key performance specifications at rates Apple just isn’t keeping up with.
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