Samsung and Apple: What is Really Going On?

Apple reported that it sold $74.6B in products last quarter, and earned an all-time record (for any company) $18.06B in profits. Sammy reported its lowest quarterly profit since 2011 at $21.3Bk, down almost a third.

In 2013 mobile had been 70% of Sammy’s profits so any drop in revenue or profitability would have an amplified effect, as it has done. They just announced that profits in mobile had dropped 64%. Luckily the semiconductor divisions profits were up 35% for the quarter partially compensating. It is good to be diversified sometimes.

According to one analyst, Strategy Analytics, Samsung and Apple sold the same number of smartphones last quarter at 74.5M. This is amazing since even with their current profitability issues, Samsung had twice the market share of Apple (in units). Of course this is a special quarter. With Apple’s once-a-year product releases they sell a huge number of phones in the first quarter after announcement (36,000 an hour all quarter, as Tim Cook pointed out on the conference call) and then it gradually tapers off. Nobody wants to be the last person to buy the old model just before they announce a new one so I expect Samsung will be ahead again this quarter. Another analyst, IDC, have Samsung a little ahead by half a million phones or so. Since Samsung don’t break out their numbers like Apple do, the Apple number is much more accurate than the Samsung one. But the really important number is that Apple makes nearly 14 times as much profit as Samsung on those roughly equal numbers of phones.

One theory as to why Apple sold more than expected and Samsung less is that people really like large screens. Really like them. And if Apple didn’t have one they had to buy Samsung. The moment Apple got one, then there was a lot less reason to buy Samsung. I have heard that Apple are selling more of the large screen iPhone6 than they expected. Women in particular love them (since they only have to fit in a purse) and men not so much since they have to fit in a pocket.

Apple sold a lot more iPhone6s than expected and that pretty much as to come out of the high end Galaxy business which is presumably the highest profit part of the market too. Xiaomi’s sales actually fell last quarter but they have still pretty much come out of nowhere and are eating into the low end of everyone’s business and Huawei, Lenovo/Motorola, and the other Chinese all compete at the price sensitive end.

Going forward isn’t looking any better for Samsung. On the earnings call they said:[they expect] the business environment in 2015 to be as challenging as in 2014

Apple, of course, doesn’t sell purely on price/features. I just read somewhere, can’t find it now, that Apple just took over from Louis Vuitton or someone like that as the most aspirational brand in China.

So prediction. Samsung will gain market share and Apple will retreat this quarter, although with Chinese New Year in a few weeks Apple will be strong for the first half of the quarter. Who wouldn’t want to find an iPhone6 in their red envelope.

Another thing to watch: will Xiaomi do a deal with Facebook in the US as rumored. It would give them instant credibility since nobody apart from the sort of people who read Semiwiki have ever heard of them over here and the original “Facebook phone” with HTC flopped. Every carrier would have to immediately support Xiaomi or risk losing a lot of business to their competitors. Never forget (as apparently Elop never realized at Nokia) that selling phones is all about carrier support. Microsoft discovered it too when the released the Kin without lining up carrier support and discontinued it 6 weeks later when it never got any.

And yet another thing: Android has 80% market share or so. But almost the only vendor making any profit was Samsung. Android will still have big market share but margins for everyone are razor thin while Apple runs away with all the money. It wouldn’t surprise me if Apple is making 2/3 or more of the profit for the entire smartphone market.