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Apple and the Smartphone Wars Today

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Now that Apple  (NASDAQ: AAPL  ) has released the new iteration of its iPhone to raucous demand, far surpassing analysts' estimates, let's see how the smartphone wars are stacking up.

Innovation at Apple
In spite of current adverse publicity over the yet-to-be-confirmed hacking of the iPhone's fingerprint scanner, the smartphone's biometrics-based security is a significant advancement. It does not have to be bulletproof to be highly effective in comparison to users having to create a password and keep it secret.

At least for this round, Apple scores points with both the public and analysts for innovation.

Competitive advantage?
Some Samsung fans may argue that consumers may not currently view the fingerprint scanner as a major competitive feature, especially in comparison to screen size. Considering over 60% of the time spent using a smartphone does not involve phone calls, but tablet-related activities, its hard to dismiss this argument.

Apple dropped about 5% after it announced its new phones because of how it compares to Android devices such as Samsung's S4 and Note III. Nevertheless, millions of upgrading iPhone users and people who were waiting to buy an iPhone purchased with a vengeance leading to the recent jump in Apple's stock.

It's also my belief that the 5s release has strengthened Apple's brand halo. I have a wealthy friend who waited in line for hours on its release date specifically for the fingerprint scanner, believing it would prevent his wife from looking through his phone (a daily occurrence). You don't think Tiger Woods wished he had that phone a few years ago? The 5s is guaranteed to become the default phone among celebs, adding to its cachet, and Apple won't have to pay a dime for their endorsements.

iOS 7 vs. other OS's
iOS 7 is also significant for Apple's future. However, with nearly 80% of the world's smartphones running Google's (NASDAQ: GOOGL  ) Android OS, the intermediate and long-term does not look as bright for Apple's smartphone business with that market approaching saturation in the next two years. It is possible that Apple may return to being more of a niche products company, and Android devices the standard, much like Microsoft (NASDAQ: MSFT  ) Windows was the default OS for PC's.That being said, iOS 7 has debuted to largely positive reviews. 

BlackBerry is going private and intends to specialize on the enterprise (governments and corporations), conceding the consumer market to Apple and Android. Windows 8 Phone has more strength behind them than most people realize, given Microsoft's financial and marketing resources, and countless developers already using Visual Studio for programming. However, the fact remains that there is no compelling reason for consumers to use it, since majority of people are used now used to using Android or iOS for consumption. That's the price Microsoft pays for being late the party with a compelling offering. 

However, Microsoft remains resolute in its need to be a player in the mobile market place, as demonstrated by its 7 billion dollar acquisition of Nokia's handset business. As the world turns away from the traditional PC, this is a necessary move to keep Microsoft relevant. Between Google giving away Android for free, and Apple making its iWorks productivity suite gratis, Microsoft's profit centers (Windows and Office) are under major attack. Increased market share in the smartphone and tablet world is key for the future of Microsoft. 

That being said...
Congratulations to Apple for their successful release, and shareholders should anticipate a boffo quarter. Like Carl Icahn states, with its already the incredibly strong brand, strengthened by the 5s release, the cash the company has, a 2.6% dividend, and their share repurchase program and low P/E multiple, especially relative to the average S&P average of 17, Apple looks very cheap.

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

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 September 26, 2013, at 12:21 AM, deasystems wrote:

    The author wrote, "Apple dropped about 5% after it announced its new phones because of how it compares to Android devices such as Samsung's S4 and Note III."

    That doesn't make sense. It obviously should have risen 5% because of how it compares with offerings of competitors.

  • Report this Comment On September 26, 2013, at 1:43 AM, Dannes2013 wrote:

    Guys don't waste your time to this fool site and authors, the site is for fools like the author. They only know one thing, fool there selfs.

  • Report this Comment On September 26, 2013, at 5:53 AM, H3D wrote:

    A bigger screen is a great feature, if and only if you can do it without making the device bigger.

    A bigger device with a bigger screen is simply a compromise, and it's merit, a matter of user preference.

    Samsung simply offer more size combinations than Apple. But then Samsung make more, smaller sales volume models anyway. They have to. They're not good at getting it right first time.

    Apple spend a lot of time thinking and testing with consumers. They want to know what works.

    Samsung is more impatient. They want something to sell now. They throw a plate of spaghetti at the wall, and see what sticks.

  • Report this Comment On September 26, 2013, at 6:14 AM, H3D wrote:

    "Apple dropped about 5% after it announced its new phones because of how it compares to Android devices such as Samsung's S4 and Note III."

    Unlikely. Apple's shares ALWAYS go up before an announcement, and always drop at, or soon after the announcement, unless the announcement includes significant good news that wasn't expected.

    Is this case, analysts had

    - assumed that the iPhone 5C was a cheap device for China and third world markets.

    - assumed a price for the iPhone 5C assuming the above, and an objective to compete for mass market on price.

    So when both assumptions turned out to be wrong, said analysts attacked Apple for having overpriced the 5C for the Chinese market, which it was never for.

    Also, these same analysts had spread rumours that Apple would announce a deal with China Mobile. That pushed the price up, and when they didn't announce, it came down again.

    These same analysts predicted sales. given all known inputs, of 5-6 million for the launch weekend.

    And now that Apple have announced sales of 9 million, they are trying apply corrections for factors that they already knew, so as not to look so stupid.

    Many of these analysts had already ruled that a gold iPhone was a stupid idea. Nobody wanted that sort of bling.

    So it's amusing that on launch in China, nobody wanted the cheaper iPhone 5C, which was said to be too expensive for the market, but instead wanted the MORE expensive iPhone 5S, in gold.

    In fact everybody seems to want their 5S in gold. So much so that Samsung are now showing retouched pictures purporting to be a golden plastic Samsung Galaxy S4.

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