Will Samsung’s Metal Galaxy S5 Hurt Apple?

Could Samsung's metal Galaxy short-circuit Apple's growth?

Jan 18, 2014 at 12:00PM

Ahead of its rumored March/April launch, leaks detailing Samsung's (NASDAQOTH:SSNLF) Galaxy S5 have begun to surface. While the next generation phones are slated to include the customary improvements (faster processor, higher resolution screen, etc.), there is one big "change" that could potentially have Apple (NASDAQ:AAPL) investors worried. Samsung is apparently going to do a "premium" version of the S5 with a metal chassis.

Could this be a big deal?
It's very tough to predict what drives consumer buying habits, particularly in high-growth, highly volatile industries. One of the main complaints that Apple aficionados tend to levy against Samsung's phones is that Samsung's are made from "cheap plastic," while the premium version of the iPhone sports an aluminum chassis. This certainly goes a long way to giving a more "premium" feel than the plastic that the Galaxy S line is made from.

It's interesting to note that Apple isn't the only company that builds premium metal phones. For example, HTC's One lineup has been lauded for its superb industrial design. However, the nice design hasn't saved HTC from the financial hardships that it faces today. Samsung's "cheap plastic" phones still outsell HTC's by a huge margin. So, what's really going on here?

It's all about marketing
At the end of the day, Apple and Samsung dominate the smartphone market primarily due to their vast marketing resources. Are there Android phones that have been better reviewed than the Galaxy S4? Of course! They don't sell anywhere nearly as well, though, precisely due to the fact that customers know Samsung's slogans, its product lineup, and its brand. Very few know what an "HTC" is.

Apple, interestingly enough, sells far fewer smartphone units than Samsung does, but its share of the high end in which it plays exclusively seems to be rather high. While part of this really is the brand equity, another big part of it is simply the ecosystem/user experience. Google's "Play" store and app ecosystem continues to grow by the minute, but Apple's iOS and surrounding ecosystem just seems to resonate more with buyers willing to shell out the big bucks.

So, about that metal Galaxy
The odds are good that even if Samsung releases a metal Galaxy S5, Samsung will likely charge an obscene premium for that model. It'll probably be a limited run, it'll be more expensive to make (amplified by the fact that it is limited run), and – frankly – it could simply serve to remind customers that Samsung is making an attempt to mimic Apple. Further, with Apple possibly launching its "larger" iPhone in the near future, Samsung loses a key product edge.

See, it's very unlikely that there is a customer base out there that will forgo a Samsung Galaxy S4 or a Galaxy Note 3 because it's not made of metal. Conversely, there may be a rather sizable number of smartphone customers whom have wanted a larger screen phone and went with a Samsung because no Apple alternative was available. The net "flow" of customers from Samsung releasing a metal Galaxy S and Apple releasing larger iPhone is very likely toward Apple.

Foolish bottom line
This year could be very exciting for the smartphone wars, indeed. While Apple had a rough 2013 (and while Samsung continued to bust out record profits for most of last year), the tides could finally turn. With Apple likely planning an all-out assault with many screen sizes and, perhaps, entirely new product categories, the company – and the stock – could do very well. Samsung, on the other hand, could lose its grip on the high end of the smartphone market. The low end is safe, though – for now. 

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Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.

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