Will Samsung Ever Lose?

In studying the history of the handset market, it's interesting to note that HTC – one of the more "premium" Android handset vendors – used to be the most successful Android handset vendor. This company was first to market with an Android-powered device (challenging the mighty Apple (NASDAQ: AAPL  ) ), and even today the company's products are typically very well received by critics. However, HTC isn't in great shape today; it's losing money and market share. While one might think that the "mighty" Apple with its superb iPhone products may be the reason for HTC's woes, the real problem is Samsung (NASDAQOTH: SSNLF  ) . In fact, Samsung is a problem for just about everybody in the smartphone market.

Copycat, blah, blah, blah – show me the money!
Samsung isn't very well liked by many investors (particularly Apple) ones. The company is often accused of "stealing" the iPhone's design and using that base to iterate and profit quite handsomely (Samsung and Apple both control the vast majority of the profits in the handset market). Indeed, when it comes to actual smartphone market share/unit shipments, Samsung is by far the leader – leaving even the well-loved Apple in the dust. Samsung is a very profitable powerhouse. But the question is, how does Samsung do it?

It's all about marketing
The key thing to remember is that consumer electronics device sales are driven as much by marketing as they are by the actual quality of the products. Does Samsung have the share that it does because its products are "better" than the competition's? This is debatable, but other than Samsung's willingness to embrace many flavors of smartphones targeted every niche and sub-niche of the overall market, there's nothing really "special" about Samsung's products. The TouchWiz UI has received mixed reviews (many simply prefer the stock Android UI), the features are often viewed as "gimmicky," and there are even complaints that even with speed-demon processors and tons of RAM the flagship Samsung phones feel slow!

But here's what Samsung has that few, if any, of its competitors have: a $14 billion marketing budget. That's right, Samsung understands that "perception is reality" and there is really no better way to change perception than with very aggressive marketing campaigns. Love them or hate them, anybody buying a smartphone knows about Samsung's "Galaxy" line of smartphones. That familiarity could be enough to seal the deal for the many millions of customers looking for an alternative to Apple's iPhone.

So, can Samsung ever "lose"?
While it's difficult to make absolute predictions over an infinite amount of time, it is very tough to see Samsung losing material handset share over the next couple of years. While Motorola via Google may be able to put up a good fight, and while Lenovo is interesting, too, Samsung is going to put up one heck of a fight. It will be interesting to see if any of the other Android handset vendors can really take some of that profit pie, but – at least today – it looks as though most of the profits are headed Samsung's way even with some very compelling product from competitors.

Samsung's marketing budget is gigantic, its brand is extremely valuable, and its willingness to put out many different variants of its devices to capture as many corners of the market as possible is a strategy that has paid off in spades and is likely to continue to do so. The only real wildcard is the potential impact of a larger iPhone on Samsung's higher-end market segment share, but this isn't going to make or break Samsung's business – not by a long shot.

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  • Report this Comment On December 30, 2013, at 6:05 PM, tychicum wrote:

    Samsung sells a killer digital bidet toilet seat. It is pricey for a crapper but one very nice seat. It even has blow dry! ... and a remote control!

    Dear Leader Kim Jong Un likes Samsung. When Korea is unified everyone will get a Samsung phone and a Samsung toilet seat !!!

  • Report this Comment On December 30, 2013, at 8:53 PM, secularinvestor wrote:

    "Indeed, when it comes to actual smartphone market share/unit shipments, Samsung is by far the leader – leaving even the well-loved Apple in the dust."

    Really? Oh you mean Samsung sells far more low end low profit smartphones.

    Samsung have been selling mobile phones for nearly 20 year. Apple have only been selling smartphones for 7 years.

    However when it comes to high end premium smartphones (which is ALL that Apple sells) it is iPhones which totally dominate the market.

    At the beginning of the year Samsung announced that it was going to sell 100 million Galaxy smartphones. Recently they adjusted that down to 100m target to include Notes, because Galaxy S4 sales are not meeting expectations. They also called600 mongers around the world to an emergency “crisis awareness” seminar.

    In the year to the end of Sept 2013 Apple had already sold over 150 million iPhones (i.e. 50% more than Samsung’s revised target of combined Galaxy smartphones Plus Note phablets.

    This quarter alone Apple is expected to sell over 50 - 60 million iPhones i.e. more than half in just one quarter than what Samsung are hoping to sell in the entire year.

    "Samsung is a very profitable powerhouse.”

    But Apple is far more profitable that Samsung. In fact, Apple is making more profits than Samsung and the entire mobile phone industry combined.

    "Samsung's marketing budget is gigantic, its brand is extremely valuable,”

    Apple is by far the most valuable brand in the world, as every survey shows. Yet Apple only spends $1 billion a year on marketing compared to Samsung’s $14 billion a year.

    Samsung has publicly stated that they want to be an aspirational brand like Apple. But NO CHANCE of that.

    Apple is the innovation leader and only produces premium, high end, aspirational smartphones.. Whereas Samsung is branded as a copycat follower who have been convicted in courts around the world for stealing Apple’s IP.

    Also Samsung use a scatter gun approach producing dozens of quickly designed, cheap low end smartphones. Samsung also has numerous discounts like 2 for 1 offers.

    You cannot expect to be No. 1 aspirational brand when you copy the market leader and you pile them up and sell them cheap.

    Apple does not need to spend as much as Samsung on marketing because iPhones have by far the highest user satisfaction and loyally rates, as well as enjoying a cachet which makes Samsung green with envy. According to Canaccord, for every ONE iPhone user who moves to Samsung, there are THREE Samsung users who move to iPhones.

    "it is very tough to see Samsung losing material handset share over the next couple of years”

    Samsung IS ALREADY LOSING MARKET SHARE in ALL THREE of world’s most largest smartphone markets.

    * In the US a recent survey shows that iPhones are gaining market share with the iPhone 5S as, by far, the best seller on EVERY major carrier, while the iPhone 5C and Galaxy are battling it out for no 2 or No 3 spots.

    * During the last 2 months, since NTTDoCoMO has started selling iPhones, Apple's market share has rocketed to an amazing 76%. Japanese consumers are gadget crazy and they recognise that the new iPhones are by far the most advanced smartphones around.

    * In China the new iPhones are also a huge hit. In the last two months Apple’s market share has QUADRUPLED, even though they are only available on the two smaller carriers. There is huge pent-up demand on China Mobile and iPhone sales are likely to rocket, just as the did in Japan with the pent-up demand from NTTDoCoMo. iPhones are considered a status symbol in China and like the Japanes they recognise that the new iPhones are by far the most advanced around.

    While Apple is crushing Samsung at the top end, Samsung is facing increasing fierce competition at the cheap end, from the even cheaper Chinese “white box” phones, which will almost wipe out Samsung’s profits at the low end, which makes up over 60% of Samsung's sales.

  • Report this Comment On December 30, 2013, at 9:52 PM, JAVKO wrote:

    Secular

    Excellent account but why waste time trying to teach a Fool the obvious?

  • Report this Comment On December 30, 2013, at 10:07 PM, johnestromjr wrote:

    Apple needs to compete with Samsung in building and selling high end television sets. We've heard about iTV for a few years - but until one comes into existence Samsung will dominate that sector as well. Come on Apple - get that iTV birthed and out to the public. Soon

  • Report this Comment On December 30, 2013, at 10:17 PM, mitsuhashi wrote:

    @secularinvestor

    Such fanboyism.

    Much wrong.

    Research need.

  • Report this Comment On December 30, 2013, at 11:03 PM, JaredPorter wrote:

    @ secular. Very well reasoned comment.

    IMO, Samsung's TURNING POINT with respect to its momentum in the Galaxy sphere was its big let down in both sales and mindset after its big Broadway Extravaganza Product Introduction of the Galaxy S4. Prior to that, the S3 was on a rapid ascent, but Samsung had raised the expectations of the S4 so high, that it was overdue for a big droop. Subsequently, the same deflation of expectations raised its ugly head once more at the occasion of the Galaxy Gear product launch which was universally panned, and is reported to fall victim to tepid sales. Meanwhile Apple leaped forward with the iPhone5s exhibiting stellar (64 bit) performance, finger print security (to keep prying parents' eyes away?), and growing Eco system. Leading analysts like Deideu, Bajarin, and Evans have said that 2014 will be a very interesting year for Samsung as it may need to introduce another more differentiating (than Android) OS to fight back to gain market share at both the top end and low end of the market.

  • Report this Comment On December 31, 2013, at 1:42 AM, theprodoc wrote:

    I'm an Apple share holder and user but I may like to also play Samsung stock too. What is their stock symbol and if I'm correct, how could the stock trade only 30 shares a day at $1350/share??? Why wouldn't even Apple shareholders be buying the competetition just for the profit??? How could no one be trading Samsung if it's soooo huge a company? Anyone know? Thanks!

  • Report this Comment On December 31, 2013, at 6:20 AM, fauxscot wrote:

    Samsung isn't fighting Apple.

    Samsung is fighting Android.

    Apple is over in Profitable Land, doing just fine.

    Sammy is shooting at all the other droiders who want the profit-free segment. Share means nothing compared to share x profit.

    Samsung will win wherever it can compete on price, alone, but when it has to compete on features and ecosystem, it just.doesn't.get.it. Maybe a cultural thing.... east mind versus western mind?

    For the moment, they are in fact, losing the high end to Apple. They are winning the low end, specifically because Apple doesn't play there. That may be the only reason.

    Those corpses out there... BBY and Nokia and HTC, as well as Dell, HP, Acer.... all killed by Apple. Samsung should be glad Apple isn't interested in the low end.

  • Report this Comment On January 01, 2014, at 5:41 AM, luke30 wrote:

    Such Apple fanboyism on this thread. Secular- I know you aren't an Apple engineer in Cupertino so do you work for the Apple Store at the mall?

    You have all the talking points down- you've read dozens of articles, no doubt from Apple Insider, that affirm your views. Apple is like a religion (um, probably a cult) for you and many others.

    Apple is a sales and marketing company that buys most of its IP from startups or takes it from others in the industry, just like Samsung. Apple has record high profit margins because people pay top dollar, far and above what it costs Apple to contract manufacture their stuff in China. Apple has no manufacturing facilities of its own and relies on firms like Samsung to build its devices and supply its A7 chip.

    I own an Apple Touch iPod from 2007 and an iPhone 5c. There is very little improvement in Apple mobile products in more than 6 years. The iPhone was awesome when it came out on AT&T in 2007- now it is fairly stale (my iPhone 4 was practically the same phone as the 5c). In my opinion, the only reason to buy an iPhone is to play music previously purchased on iTunes.

  • Report this Comment On January 01, 2014, at 4:16 PM, secularinvestor wrote:

    Luke30: "I know you aren't an Apple engineer in Cupertino so do you work for the Apple Store at the mall?”

    No I don’t work for Apple or anybody else. I am an investor.

    "You have all the talking points down- you've read dozens of articles, no doubt from Apple Insider, that affirm your views. Apple is like a religion (um, probably a cult) for you and many others.”

    Yes, I am very widely read, not just about Apple but the entire mobile industry.

    NO I’m not religious about Apple, but all my research points to the facts I made in my post. If you disagree with with just let me know and I will point you to the sources.

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