Can Apple Ever Overcome Samsung's Lead?

Apple (NASDAQ: AAPL  ) and Samsung have traded the title of world's biggest smartphone vendor over the years. That's a title that Nokia (NYSE: NOK  ) once held but gave up in 2011 when Samsung overtook the Finnish vendor in Q3 2011 for the first time. Just one quarter later, Apple became the king of the smartphone hill, driven by strong sales of the iPhone 4S. That didn't last long, as Samsung would reclaim the throne shortly thereafter.

Sammy pulls ahead
This race has been a close call from quarter to quarter, but figures from both Strategy Analytics and IDC now show the South Korean conglomerate extending its lead. In the fourth quarter, both researchers estimate that Samsung sold approximately 63 million smartphones, earning a 29% market share. That's higher than the 47.8 million iPhones that Apple sold to grab a 22% slice of the smartphone market.

Nokia is still working through its painful transition to Lumia devices; the 4.4 million Lumias it sold were two-thirds of the 6.6 million total smartphones it shipped during the fourth quarter. That puts the company's market share at 3%, down from the 12.5% it had a year prior. Nokia's making progress, though, as the company said demand outstripped supply of its newest Lumia 920, which was hurt by supply constraints.

Here's how the three companies finished out the full year.

Company

2012 Smartphone Units

2012 Smartphone Market Share

Samsung

213 million

30.4%

Apple

135.8 million

19.4%

Nokia

35 million

5%

Source: Strategy Analytics.

That's a big lead that Samsung has, selling almost 80 million more smartphones than Apple. Can Apple ever overcome Samsung's lead?

Where is this coming from?
First, it's useful for investors to identify where Samsung is seeing strength. It's certainly not domestically in the U.S. market, since the iPhone represented 74% of total smartphone activations between AT&T and Verizon combined. That means Samsung is enjoying success internationally and leveraging its massive scale, extensive distribution network, and large number of carrier partners.

On the high end, we also know that the iPhone still outsells Samsung's flagship Galaxy S model, which is now on its third generation. The company recently announced that the Galaxy S series has reached over 100 million units in channel shipments since the family was launched in 2010. The iPhone has sold over twice that during roughly the same time frame.

However, there's one high-end market where Samsung plays that Apple hasn't touched yet: phablets. The 5.5-inch Galaxy Note 2 is off to a strong start and had reached over 5 million units in channel sales by November. Larger displays are growing in popularity but it's unclear if Apple will pursue this market segment.

We can also cross reference that data with these estimates. The Galaxy S III was launched in 2012, so substantially all 40 million of those units were shipped last year. The Galaxy S II debuted in April 2011, and Samsung said 10 million of those units shipped in the first five months. Depending on how many Galaxy S II units Samsung shipped in Q4 2011, that likely puts its 2012 shipments of that model between 20 million and 25 million.

That means between the flagship GS II and GS III, Samsung probably shipped between 60 million and 65 million units in 2012. That's just 28% to 31% of Samsung's total smartphone shipments in 2012.

The only way
So if Apple is still outselling Samsung domestically and in high-end markets for non-phablet flagship devices, that shows that Samsung is making most of its gains in low-end emerging markets where it's willing to target lower price points than Apple is. Even if you include the Galaxy Note phablets, the overwhelming bulk of Samsung's units are still coming from these low-end emerging markets, many of which are unsubsidized.

The only way Apple will ever catch up to Samsung is if it expands the iPhone family with a lower-cost model.

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Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

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 25, 2013, at 8:18 PM, JesusQuintanaJr wrote:

    Why should Apple care about marketshare? The obsession with marketshare bloggers and reporters have is really stupid. No one screams that BMW needs to come up with a super cheap car for developing countries to gain marketshare from Hyundai. Why they do so for Apple with smartphones is beyond me.

  • Report this Comment On January 25, 2013, at 8:19 PM, techy46 wrote:

    Samsung, Apple, Nokia and all other device makers have to be really careful not to sacrifice profits for revenue growth. It's not necessaril the biggest that survives it's the most adaptable. Picking off customers from the top down is much better than bottom up approach.

  • Report this Comment On January 26, 2013, at 4:30 PM, HiramWalker wrote:

    Results in the USA suggest that Apple CAN dent Samsung's lead. On Verizon, which was formerly almost 100% Android, Apple now sells the majority of smart phones, despite the fact that Verizon salespersons push Android very hard.

    Samsung's big global lead is a result of their cheaper and bigger phones taking the majority of the conversions from cheap to smart phones. As these users mature, they may follow the USA pattern of stepping up to the IOS system, after finding that the Android system is "not as advertised" and a poor substitute for IOS.

    Apple does need to realize that, just because it is better to have a small phone and a larger tablet, not every user can afford two devices and many are willing to accept the compromises of a phablet.

  • Report this Comment On January 31, 2013, at 1:08 PM, KevinK20 wrote:

    what about iphone 5 sales... instead of comparing the whole fleet of iphone sales to S3 sales .. lets do a iphone 5 to galaxy s3 sales.. 4 and 4s models are sold at lower prices points now and should be compared to s2 or lower model sales..

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