Have Apple, Samsung, and BlackBerry Hit a Dead End?

Last September, Apple (NASDAQ: AAPL  ) released its latest smartphone, the iPhone 5, to great fanfare. Nevertheless, many pundits claimed that the new iPhone was a disappointment; it didn't seem innovative compared with its predecessors. The iPhone 5 is thinner and lighter than the iPhone 4S, has a bigger screen (4 inches, as opposed to 3.5 inches), provides LTE support, and offers an upgraded camera and processor. However, to many observers, these features seemed like minor tweaks. The result was hysteria about whether innovation at Apple had died along with Steve Jobs.  Apple's stock subsequently dropped 40% in less than six months.

AAPL Chart

Apple Price Chart: 9/21/12-3/21/13; data by YCharts.

Strictly speaking, Apple critics may be right that the company's smartphone designs won't be as innovative in the future as they were in the past. However, that's primarily because Apple began with a great concept, so that the iPhone quickly became the gold standard among smartphones. By the time the iPhone 4 was released in June 2010, there wasn't much left for Apple to improve on. (And that explains why the iPhone 4 remains so popular; demand outstripped supply in the fall quarter.)

Since 2010, Samsung and other vendors of Google (NASDAQ: GOOGL  ) Android phones have made significant progress to catch up with the iPhone. Recently, BlackBerry (NASDAQ: BBRY  ) has taken a great leap forward as well. However, a look at the most recent product launches on rival platforms -- Samsung's Galaxy S4 and BlackBerry's Z10 -- suggests that Apple isn't the only smartphone maker for which innovation is reaching a dead end. Smartphones are all converging toward a common look and feel, with similar capabilities.

From left to right: Samsung Galaxy S4, iPhone 5, and BlackBerry Z10. Images from the manufacturers.

That doesn't necessarily spell doom for smartphone makers. There are plenty of people who still don't own a smartphone, or who have a low-end smartphone but will eventually want a better one. And as Henry Blodget recently argued, significant improvements to battery life could persuade many smartphone users to upgrade. Finally, smartphones don't last forever. Manufacturers should see strong replacement cycles over time, because of the recent increase in smartphone penetration.

An iPhone clone?
When the BlackBerry Z10 was introduced in January, many observers quickly noted its visual similarity to the iPhone. Its 4.2-inch screen makes it just slightly bigger than the iPhone 5, and the Z10 is an all-touch device, differentiating it from most previous BlackBerry phones. While the user interface is significantly different from iOS and Android, the general experience is similar: It's all about apps.

BlackBerry has talked up the differentiating features of its BB10 OS, such as the Hub (a collection point for emails, texts, social media messages, and so on) and BlackBerry Balance (a feature to separate personal data from work data). Still, most observers agree that there aren't enough differences to persuade iOS or Android users to switch in significant numbers. In other words, it's different, but not especially innovative. From an investor standpoint, BlackBerry's main advantage is that it is cheap, with a market cap just 2% of Apple's.

Boom or bust: Samsung's Galaxy S4
Commentators who think Apple is falling behind in the "smartphone wars" almost universally point to Samsung as the major challenger. However, when Samsung revealed its new Galaxy S4 smartphone last month, it became clear that there were no game-changing improvements. (Not coincidentally, following the S4 launch event, Apple logged its best two-day stock performance in months.) The S4 is slightly bigger than its predecessor, but as Apple critics were quick to point out following the iPhone 5 and iPad Mini launches, changing a product's size is not really "innovation." The S4 has a variety of other hardware upgrades compared with the S III, such as a better camera and faster processor. (Sound familiar?)

The biggest "innovations" for the S4 are a variety of software features. One pauses a video when the user looks away from the screen. Another allows the user to bring up a preview by hovering over an email message or a photo. Another is designed to allow users to scroll up and down with their eyes. However, early reviewers -- such as Tiernan Ray of Barron's and Jessica Dolcourt of CNET -- didn't see any of the new software capabilities as "must-have" features. They also found that many didn't work nearly as well in practice as in theory. While Samsung may be able to correct some of the software's limitations by the time the S4 hits store shelves, it is nevertheless clear that Samsung is also running out of ways to spruce up its phones.

Foolish conclusion
Apple critics may be right that the iPhone 5 didn't have any particularly innovative new features. However, that isn't due to any particular fault on Apple's part: Other vendors such as Samsung and BlackBerry are encountering the same problems. I wouldn't go so far as to say that the smartphone experience has been "perfected," but there is limited room for improvement after all of the progress that has occurred in the past five to 10 years.

The leveling of the playing field does mean that Apple's advantage over its rivals has narrowed considerably. However, shareholders need not panic. Apple has a large, loyal installed base of users who want the iOS experience -- which is exclusive to Apple, obviously. Upgrades for these users will produce a significant stream of recurring revenue. Meanwhile, Apple can continue to seek growth in emerging markets, by adding new carrier partners and potentially by releasing a cheaper iPhone ($300-$400 unsubsidized). Apple's growth may be more modest going forward, but the recent worries that Apple is falling behind competitors have been blown out of proportion.

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Read/Post Comments (10) | Recommend This Article (0)

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 April 06, 2013, at 1:18 PM, sammycooool wrote:

    iPhone is boring for all of its own reasons, a 2007 OS, a boring experience, no multitasking, no messaging system that works, poor typing, it is a dinosaur today. Don't blame all of this on a rectangular shape.

    Z10 OS is years ahead of i OS and comes with security and multitasking plus it has the best messaging in the world and Apple's QWERTY board model is garbage, because it doesn't have one. BlackBerry is going to kill Apple.

  • Report this Comment On April 06, 2013, at 1:22 PM, tychicum wrote:

    Samsung has hit a road block because it has to wait until Apple invents something new so they can steal it.

    That and Dear Leader Kim Jungun is tanking the Korean stock market ...

    On Friday SSNLF.PK 1385.00 -40.00 -2.81%

    Samsung Elect Ltd(F)

    Like a terd circling the bowl ..

  • Report this Comment On April 06, 2013, at 1:45 PM, jwyoungy wrote:

    I actually agree with the fool this time to a point. I do think Apple hit a wall after the iphone 4. It was the last major leap the company took in hardware and style. The basic software is the same since 2007 and is really starting to look old. I disagree with regards to blackberry. I think the Z10 is the very start of what will be a whole new way of doing things. Remember that when RIM released its first blackberry back in 1999, it was a huge innovation that took the world by storm. They felt no one could do it better until Apple did it better in 2007. Just like blackberry, Apple's iOS has run its course and Is nearing the end of its luster. Blackberry is the true technology leader again and in a few years the market share will reflect it. Remember, Blackberry was still on top until 2009 or 2010. Technology changes very fast, the consumer is a little slower to catch up.

  • Report this Comment On April 06, 2013, at 2:04 PM, cbglobal wrote:

    Yes, they have all hit a dead end. The era of the smartphone is now over...(satire alert)....

  • Report this Comment On April 06, 2013, at 2:26 PM, Jjkiam wrote:

    nice to see such passionate defenders of BBRY!

    But alas the truth is that the new phone has specs which barely compete with last years Galaxy or Iphone. The vaunted new OS based on QNX which is older than IOS or Android does some things well but still has major bugs and frankly doesn't do anything which either of the major OS's can't emulate. Most importantly BBRY is stoll shedding users and has no ecosystem to compete with APPLE . Finally the pace of refresh and innovation places BBRY way behind the curve going forward

    Because they just don't have the resources to stay competitive with either Samsumg or Apple and Google and maybe even Nokia. This was their last gasp effort and unfortunately for them it fell short

  • Report this Comment On April 06, 2013, at 3:06 PM, Oril wrote:

    You lost me when you quoted blackberry as being cheap for investors because it has only 2% the market cap of apple. Do you fools know anything about investing or do you just make this garbage up as you go?

  • Report this Comment On April 06, 2013, at 4:26 PM, TMFGemHunter wrote:

    @Oril: the point of the comment was that BlackBerry does not have to "beat" Apple for the stock to be a good investment at the current price. I'm not as bullish on BlackBerry as some of the other posters in this comment thread (such as jwyoungy or sammycooool), who think BlackBerry is going to eat Apple's lunch. Yet I still own BlackBerry stock/call options, because I think that BlackBerry can hold on to a modest niche in the smartphone market (maybe 5%-10%), and be profitable with that level of market penetration.

    My statement that BlackBerry was cheap was not meant to refer to P/E ratio or other financial metrics. The advantage of investing in BlackBerry rather than Apple is that the company needs a lot less success in order to generate high investment returns.

    That said, I'm not trying to trash Apple in any way. I will freely admit that BlackBerry is a more risky investment than Apple due to the latter's large installed base, IP, brand equity, cash position, etc. Apple is actually the biggest holding in my personal stock portfolio today; I bought a bunch of stock as the shares tanked in the past few months.

    Adam

  • Report this Comment On April 06, 2013, at 5:45 PM, eidsonb wrote:

    @Jjkiam I would not call loosing 4 million users in two quarters "shedding users". They are still above where they were this time last year. And even comparing BB10 to iOS is a desperate move. iOS is OLD and Apple has quite innovating. The could release iToy 45s with iOS 72 and as long as it is the same UNIX based system the phone base operation will not have changed. All we would have is bigger and better bells and whistles. I really want a 19 inch phone....wait thats what that other POC Galaxy is for. BB10 only looks like iOS becasue it has icons. The similarity ends there. QNX is that good and that big of a game changer comapered to what Andorid and iOS still offer. BB10 will be pushing both of these for number one again in the next two years. BB Must not rest and be a force for innovation which it has become again.

  • Report this Comment On April 06, 2013, at 10:15 PM, eidsonb wrote:

    Glad to see that Infothatsucks/Marcap/JamesApple is represented....still not over getting canned are you

  • Report this Comment On April 08, 2013, at 12:10 PM, BlackberryRules wrote:

    Anyone that knows anything about techgnology knows that QNX/BB10 is the future. This is a revoluionary new mobile platform. iOS is a old, stale, buggy, bascially the worst OS ever. Android isn't much better. Both are dead. The futuer is BB10. Blackberry is the only choice now.

    InfoThatIsStupid: I hope you bought AAPL at $700 and are shorting BBRY. Laughing my ass off at you!!! Long BBRY all the way to $100.

    Apple is history!!

    Nokia is dead!!

    Blackberry is the future.

    InfoThatHelp was fired from BBRY due to incompetence. Now that he's gone, it's no wonder they are doing so well. Long BBRY!!!!

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