Samsung Probably Lost Share to Apple

With a disappointing earnings forecast from Samsung, it's looking like the South Korean giant is losing share to Apple.

Jan 8, 2014 at 7:00PM

In an interesting turn of events, Samsung (NASDAQOTH:SSNLF) reported some pretty ugly guidance for the final quarter of 2013. Keep in mind that an "ugly" quarter from an operating profit perspective means operating profit of roughly 8.3 trillion Korean won at the midpoint (or about $7.8 billion), but this was below even the most bearish sell-side expectations of 8.8 trillion won. What's happening here is likely a double whammy: share loss to Apple (NASDAQ:AAPL) and slowing high end of the mobile market.

Samsung share loss to Apple
Samsung has spent an enormous amount of money on marketing its mobile products -- about $14 billion for the year. This budget, coupled with an aggressive push into many variants and form factors, has allowed Samsung to capture nearly as large a piece of the mobile profit pie as Apple has (while other players like HTC and Motorola continue to lose money).

However, it seems that with Apple on top of its game with the Retina iPad Mini, iPhone 5s, and iPad Air, the Cupertino giant is winning back share that it had previously lost to Samsung. Further, this phenomenon could get worse if, or when, Apple rolls out its rumored iPhone Air large-screen phone to take further share from Samsung's Galaxy Note products.

The high-end market is slowing down
Interestingly, while Samsung seems to be losing share to Apple at the very high end, another force working against the company is the dramatic slowing of high-end growth in the handset market. With this portion of the market slowing, and with Apple taking back share, Samsung's exposure to the mobile market is increasingly at the low end.

There's nothing wrong with the low end for a company like Samsung, but it does mean that the obscene profitability that the smartphone boom initially drove could come to an end. Further, if Apple is successful at sewing up the high end, Samsung will suffer some real margin compression.

The question is now at the low end
At CES, Intel partner ASUS launched a new line of phones known as the ZenFone, which ranged from $100-$200 without a contract. The phones ran Android and actually looked like a pretty interesting value. If more traditional PC vendors start going all-in on smartphones, and if the market fragments as the PC market has, then Samsung's main profit drivers could be in trouble -- although this really is a longer-term concern.

Foolish bottom line
It looks as though the same phenomenon that hit Apple (a contraction of profitability) back in 2012 is beginning to hit Samsung in early 2014. While the smartphone as a category has been hot and flashy, and while there is a very lucrative high end for Samsung, the risk from Apple at the high end (and from smaller players at the low end) is very real. This is why Samsung trades at roughly seven times earnings -- the risks to that profitability are simply enormous longer term. 

Profit from the smartphone revolution
Want to get in on the smartphone phenomenon? Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers