If Anyone's Taking Down Apple, It's Samsung

If it's possible to fly under the radar, while earning $8.3 billion in operating profit a quarter, the Galaxy maker's doing it.

Much is made of Apple's (Nasdaq: AAPL  ) dominance in the smartphone market, and for good reason. Here in the U.S., significant competitors -- including Google (Nasdaq: GOOG  ) with its Nexus phone and Android OS, Microsoft (Nasdaq: MSFT  ) and the new Windows Phone 8, along with smaller players Nokia (NYSE: NOK  ) and Research In Motion (Nasdaq: RIMM  )  -- are all looking up at Apple.

New iPhones, iPads, and other iGoodies, are introduced with huge fanfare, and even more importantly for Apple shareholders, huge sales -- domestically. A funny thing happened today, though. Samsung, a world leader in appliance and TV sales, displays, and, of course, mobile phones, announced sales and earnings results, and the domestic smartphone industry would be wise to take notice.

Samsung's Q4 specs
As is the norm for Korean-based Samsung, today's earnings announcement is "guidance," rather than hard-and-fast numbers. With that said, Samsung's jump in operating profit in Q4, to an estimated $8.3 billion, was an 89% increase compared to its year-ago quarter. What's driving all that growth? Smartphone and tablet sales, along with a few TV's, appliances, and Samsung's display division, have been going gangbusters.

Though total mobile phone sales results for 2012 have yet to be released, if Q3 numbers are any indication, Samsung will end the year somewhere around 375 million units sold, give or take. Those are impressive results, in and of themselves. What makes Samsung's phone sales disconcerting for Apple, Google, Microsoft, Nokia, and RIM fans is that Samsung sold a whopping 55 million smartphones in Q3 alone. In other words, about two-thirds of Samsung phone sales are of the smartphone variety -- right in Apple's wheelhouse.

Apple introduced its new iPhone 5 heading into Q4, several months after Samsung's Galaxy III. With the usual run on Apple products at launch, it's notable Samsung is still sitting on a comfortable lead. How? Samsung is not only a diversified electronics product company, it's geographically diverse as well. For the first half of 2012, Samsung 's U.S. smartphone sales amounted to a mere 12% of its total; the balance of smartphone units sold were derived from Europe, Asia, and the Pacific regions.

The impact on Apple
Growth for a publicly traded company isn't a nicety -- it's a necessity. Fools know this. Beginning in Q3 of last year, it has been a concern as to where Apple will find growth going forward. An iPhone 6, perhaps? The problem for Apple is that unveiling its latest smartphone has been the modus operandi for years -- build another smartphone, and people will come.

But with nearly half its revenues, and two-thirds of its earnings, coming from smartphone sales, Apple has a whole lot of eggs in one, big basket. Apple's growth, and its return to the lofty $700-a-share range shareholders enjoyed last year, relies on international expansion of its smartphone sales. Analysts, iFanatics, and industry insiders can talk about an iTV all they want, but even there Apple's late. Google, like Samsung, is introducing its Android OS TV at the CES tech conference in Vegas.

And speaking of CES, Samsung announced it's rolling out the ATIV Odyssey domestically in the next several weeks, its first smartphone foray using Microsoft's Windows 8 OS. Plans are for Verizon to offer Samsung's first Windows 8 phone, with Sprint getting on board by this summer, adding even more non-Apple alternatives for U.S. smartphone consumers.

What's an Apple to do?
As the smartphone market, particularly domestically, becomes increasingly mature, there is even more pressure being put on Apple to perform. How to keep those stellar smartphone-related profit margins, once the envy of manufacturers everywhere, while more and more pressure is being applied by other smartphone players? Just as with Samsung, the answer lies internationally.

Apple will continue to sell iPhones here in the U.S. -- it's difficult to see that slowing anytime soon. But maintaining the status quo isn't what made Apple a shareholder's dream these past several years. Rather, its explosive sales results have. Apple CEO Tim Cook clearly understands the need for international expansion, as today's second trip to China in 10 months will attest. As the largest market in the world for smartphones and computers, the near-doubling of Apple's Chinese retail outlets to 11 from just six less than a year ago is certainly a step in the right direction.

The days of Apple sitting back and watching the sales and earnings roll in uncontested are over; Google, Microsoft, and especially Samsung have seen to that. Will Apple ever become the $1,000-a-share stock many were touting just months ago? Only if Cook can lead Apple there.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 08, 2013, at 10:05 PM, secularinvestor wrote:

    "Apple introduced its new iPhone 5 heading into Q4, several months after Samsung's Galaxy III. With the usual run on Apple products at launch, it's notable Samsung is still sitting on a comfortable lead."

    WOW. The author has fallen hook, line and sinker for Samsung's BS and lies. Check your facts Mr Brugger!

    According Samsung in the CES presentation they "shipped" 30m Galaxy S IIIs since its launch in May to the end of Dec, 2012, which they claimed made it the "best selling" smartphone

    According their PR through Reuters Korean reporter they claimed "Shipments of Samsung's flagship Galaxy S III, which overtook the iPhone 4S in the third quarter to become the world's best-selling smartphone, are likely to have slipped to around 15 million in the last quarter from 18 million in July-September. But estimated sales of around 8 million Galaxy Note II phone-cum-tablets, or 'phablets', should more than make up for that - pushing overall smartphone shipments to around 63 million, analysts estimate."

    As anybody knows who knows anything about the the smartphone there is a world of difference between "shipped and "Sold".

    Apple reported "sales" of nearly 27m iPhones in the Qtr. ended Sept 2012.

    Analysts consensus ids that Apple will sell around 45m iPhones in the Qtr. ended Dec 2012.

    So in the time Samsung "shipped" 30m Galaxy S IIIs, many of which are still sitting on shelves and being heavily discounted to shift them, Apple have "sold" for real $$$$ 72m or more iPhones in just the last two quarter i.e. more than twice as many as Samsung's claims of 30m "shipped"

    Also, if the author cared to check his facts Kantar, who have surveyed over 260,000 people in the US have found that iPhones have a US market share of sales of 53%. That leaves just 47% for all the Androids, Blackberries and Windows phones combined.

    Globally Kantar also reports that the iPhone is gaining market share!

  • Report this Comment On January 08, 2013, at 10:49 PM, nlosborne wrote:

    Ok. Samsung sells a BUNCH of DIFFERENT phones, some small screen and some large… across different cellular networks around the world… they probably have like 50 DIFFERENT phones out there… APPLE, on the other hand, has only 3 smartphone models for sale… that's it. How can people possibly expect aapl to sell more phones than a company that has like 50 phones? That is what I think so great about apple is when you compare, the numbers are close, and the iPhone is number one

  • Report this Comment On January 08, 2013, at 11:22 PM, timbrugger wrote:

    Ah...so the 'facts' as noted by a reporter, or Kantar (basically, a marketing research firm), ARE definitive? I'd be careful clinging only to data that supports the hoped for notions, or results.

    As for Apple's U.S. market share, and Samsung offering multiple phones (something Apple better start doing themselves, by the way) vs. the limited number of iPhone models; those are my points exactly.

    Thanks for the posts! Tim.

  • Report this Comment On January 09, 2013, at 12:03 AM, zippero wrote:

    Given that Samsung's Galaxy S3's are suddenly dying left and right all over the world after just 6 months of use due to either a faulty chip or motherboard (do a google search for "Ultimate GS3 sudden death thread," now almost 300 pages long at xda developers website), Samsung's true colors as a maker of the world's shabbiest products come to light as fast growth has led to quality problems at Samsung that are hurting its reputation by leaving people with "bricked" Galaxy S3's worldwide. The solution? Buy an iPhone 5!

  • Report this Comment On January 09, 2013, at 12:07 AM, TimKnows wrote:

    Samsung is killing Apple everywhere and there is nothing Apple can do about it.

  • Report this Comment On January 09, 2013, at 1:56 AM, aa8195 wrote:

    You mean to tell me there are millions of unsold GS3s on the shelves and retailers keep ordering more & more and that's how Samsung was able to ship so many phones??? Come one, retailers and distributors don't ask manufactures to ship more products when they are not selling and sitting on shelves.

  • Report this Comment On January 09, 2013, at 8:49 AM, secularinvestor wrote:

    timbrugger, you missed the point. Reuters Korean journalist uncritically reported Samsung's claimed shipments of 18m Galaxy S IIIs in Q3 2012 declining to 15m in Q4 2012.

    Also it was Samsung who reported at their CES presentation that they had sold or shipped a total of 30m Galaxy S IIIs since their launch in May 2012. That obviously does not agree with their claims in the Reuters PR of having shipped 18m + 15m in 2 Qtrs = 33

    This is therefore how Galaxy shipments and iPhone sales compare (according to Samsung's own figures and Apple's SEC filings of actual sales:

    Qtr Ending Galaxy Shipped IPhone Sales

    June 2012 ? 26m

    Sept 2012 18m 26.9m

    Dec 2012 15m 45m*

    Total 33m** 97m

    * Consensus estimates of around 45m iPhone sales in Dec. Quarter.

    ** Samsung started shipping Galaxies in May 2012 (i.e. in the Qtr. ending June 2012) but their numbers of claimed sales don't add up.

    So looking at the above table, how can Samsung claim they have shipped only 30m Galaxy S IIIs and claim that they are the best selling smartphone, when Apple sold 2 to 3 times more iPhones every quarter?

    If you do the math you can see that both the iPhone 4S and 5 outsold the Galaxy S III.

  • Report this Comment On January 09, 2013, at 8:52 AM, secularinvestor wrote:

    The table above has not been formatted so I will try again

    Qtr Ending........ Galaxis Shipped....IPhone Sales

    June 2012................? ........................26m

    Sept 2012 ..............18m ....................26.9m

    Dec 2012 ...............15m..................... 45m*

    Totals .....................33m** ..................97m

    * Consensus estimates of around 45m iPhone sales in Dec. Quarter.

    ** Samsung started shipping Galaxies in May 2012 (i.e. in the Qtr. ending June 2012) but their numbers of claimed sales don't add up.

    So looking at the above table, how can Samsung claim they have shipped only 30m Galaxy S IIIs and claim that they are the best selling smartphone, when Apple sold 2 to 3 times more iPhones every quarter?

    If you do the math you can see that both the iPhone 4S and 5 outsold the Galaxy S III.

  • Report this Comment On January 09, 2013, at 9:12 AM, secularinvestor wrote:

    aa8195 said: "You mean to tell me there are millions of unsold GS3s on the shelves and retailers keep ordering more & more and that's how Samsung was able to ship so many phones??? Come one, retailers and distributors don't ask manufactures to ship more products when they are not selling and sitting on shelves."

    You obviously don't understand that IT IS NOT RETAILERS REPORTING ORDERS but it is Samsung who CLAIM that they "shipped" 30m Galaxies S IIIs since their launch in May 2012, and they CLAIM that that makes S IIIs the "best selling " smartphones and out selling the iPhone.

    There is no evidence of retailers order's for Galaxy S IIIs that I know of. Perhaps you would like to enlighten us with a link to your source?

    What we do have is evidence that in September, when Apple announced the iPhone 5, retailers and carriers began to heavily discount Galaxy S IIIs.

    My daughter-inlaw bought an untethered Galaxy S III from T-Mobile (who don't subsidise them) for just $190.

    In the UK CarPhone Warehouse were even making a 2 for one offer of one Galaxy S III plus a Galaxy Tablet, for the price of one S III.

    Why do you think retailers and carriers are heavily discounting S IIIs?

    Even Samsung announced that shipments of Galaxy S IIIs DECLINED to 15m shipped in the Dec 2012 Qtr. from the 18m they claimed they shipped in the previous Sept 2012 Quarter.

    If the Galaxy S III was outselling the iPhone 5, why did shipments decline?

    And where are the lines for people wanting to buy S IIIs?

  • Report this Comment On January 09, 2013, at 12:15 PM, rhealth wrote:

    "The days of Apple sitting back and watching the sales and earnings roll in uncontested are over"

    Yeah, I agree

    While a lot of people seem to disagree with the article, but i will say the galaxy is the first serious competition to the iphone seen yet and I applaud it. You can't let one vendor go unchecked in any market.

  • Report this Comment On January 09, 2013, at 12:54 PM, secularinvestor wrote:

    rheath said: "but i will say the galaxy is the first serious competition to the iphone seen yet and I applaud it. You can't let one vendor go unchecked in any market."

    Yes competition is healthy, but it is dishonest of Samsung to claim that the Galaxy S III is the "best selling" smartphone and that it out sold the iPhone, when that is quite plainly untrue hype.

    And it is naive of the author just to accept Samsung's marketing hype as fact, when if he had checked his facts he could easily have discovered that Samsung were falsely hyping Galaxy market performance compared to the iPhone.

    His article is therefore misleading and built on a false premise. The fact is that the iPhone is trouncing the Galaxy S III.

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