Will Samsung's S5 Success Hurt Apple Inc?

Samsung Electronics  (NASDAQOTH: SSNLF  ) just reported that shipments of the latest version of its high-end smartphone, the Galaxy S5, were 10% higher in the first month after release as compared to the previous model, the S4. About 11 million S5s have been shipped since early April according to co-CEO J.K. Shin.
 
Conventional wisdom would normally indicate that this is good news for Samsung investors and maybe not so good for those of arch-rival Apple  (NASDAQ: AAPL  ) , right? Not necessarily.
 
Unsaturated high-end market?
One of the key takeaways from the Samsung announcement was that the high-end smartphone market, especially in developed economies, may not be saturated after all. The South Korean conglomerate reported a pickup in sales in Europe and the United States, once thought by many analysts to be less important going forward for the industry. Everyone was looking at China as the key battleground.
 
Recent data from Apple, which only competes in the high-end, confirms the Samsung information that the top tier of the market is doing fine. Apple reported results in April and brisk iPhone sales were the feature of the 10-Q filing. Over 94 million devices, including the two latest models, the 5s and 5c, were sold in the final quarter of 2013 and first three months of 2014, up 11% compared to the same period in 2012-2013.

Foolproof
Another piece of information gleaned from Samsung was that the increased S5 sales may have been due to several technological improvements made to the device. Users have been clamouring for phones that can better withstand "normal" everyday use, including being dropped in water, and can snap photos in the dark. The company made the latest Galaxy more resistant to moisture, and dust and the camera and battery life were improved.
 
Is Apple paying attention? An iPhone 6, which is due out in early fall, according to several reports, could have a bigger screen size in order to address the trend to larger displays that Samsung already has incorporated. Will the update from Cupertino also be waterproof and dustproof?
 
There are reports in the media that the iPhone 6 camera will take better pictures in low light conditions. 
 
If Apple can introduce the same technology inherent in the S5, and with the market for high-end smartphones not washed up as previously thought, the iPhone 6 could be a winner. Investors could be rewarded for sticking with Apple.
 
Samsung should look toward Cupertino
Samung could learn a few things from its main competitor too. Apple pays about $208 for the parts installed in the 32 GB version of the iPhone 5s. Components used in the 32GB S5 cost $251 to procure. Advantage: Apple.

Ironically, Samsung actually benefits from iPhone sales too. The brains of the 5s model, the A7 processor, is fabricated by the Korean company. Apple is reportedly looking elsewhere to buy the CPU that will be used in the next generation device.  

If Apple moves away from Samsung for the iPhone 6, expect the Korean company to be affected a bit, but if Samsung can reduce the cost of the components used in future S5 production, or in next generation models, its investors could profit. 

Foolish conclusion
In spite of the initial success of the Galaxy S5, Apple might not be as affected as one might think, especially if the company incorporates some of the features inherent in the Samsung device. Another reason for optimism in Cupertino is that the high-end smartphone market, including in established economies, where Apple is king, is not stagnating.

 

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Read/Post Comments (12) | Recommend This Article (2)

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 May 24, 2014, at 1:15 PM, rphunter wrote:

    Well, gee. It's a nice phone. My niece was showing hers off a couple of weeks ago. If you want a phone that covers your whole face when you talk on the phone, and won't fit in a guy's shirt pocket, this is just the one for you.

    As for sales, the iPhone 5C sold 9 million in the first week, and it was labeled a 'disaster', and a 'disappointment'. So, I don't think Samsung should celebrate until it breaks the iPhone 5S sales record for the first month.

  • Report this Comment On May 24, 2014, at 1:35 PM, fredtorres wrote:

    "...just reported that shipments of the latest version of its high-end smartphone, the Galaxy S5, were 10% higher in the first month after release as compared to the previous model, the S4."

    Samsung has never, and probably will never report actual sales numbers. That's the contrast between Apple and Samsung. Apple does not report a phone as sold, until someone actually buys it.

    "If Apple can introduce the same technology inherent in the S5, ...."

    This isn't a "feature" war. Samsung as shipped some pretty questionable "features" in their phones, in the past, all in the interest of trying to appear innovative. Apple does not just throw features at a phone to make it interesting. It has to make sense, and it has to be relevant.

  • Report this Comment On May 24, 2014, at 2:12 PM, Mathman6577 wrote:

    Thanks for the comments.

    Fred: I agree with you. If you read carefully I wrote that Samsung reported "shipments", not "sales". My overall premise is that the S5 success will not hurt Apple but the company still needs to pay attention to what Samsung is doing.

    Rphunter: I believe the 9 million sold in first weekend applied to both 5s and 5c models. In addition, the 5c was either the No. 2 or No. 3 selling phone at the 4 major US carriers, outselling the S4 in most cases. So I agree with you on that point

  • Report this Comment On May 24, 2014, at 3:24 PM, marv08 wrote:

    Well, the iPhone 5s is faster than the S5, already uses the new 64-bit ARM instruction set (which e.g. speeds up encryption/decryption tasks manifold), has a motion coprocessor, the better fingerprint scanning solution. Most reviews also rate the image quality on par between the two. So, it really is more like the S5 was catching up to the 5s, not the other way around, and there is really nothing Apple must "catch up" to.

    A bigger screen is not an innovation, it is a design decision to use a different component. Apple will go bigger for sure, but this is not "catching up", it is a reaction to demand.

    I certainly admit that some degree of dust and water proofing is desirable, but not desirable enough to compromise the design of a device. Apple won't go for band-aid plastic and flimsy port covers, just to put one more feature on its checklist. The demand for rugged devices is a niche that certainly exists, but just as with rugged laptops, it is rather small.

  • Report this Comment On May 24, 2014, at 3:34 PM, johnestromjr wrote:

    In a word.... No!

    Samsung is losing the bottom end and the top end for smartphone sales. The Chinese are killing them at the lower prices and iPhone is killing them at $500 and above.

  • Report this Comment On May 24, 2014, at 6:41 PM, JHawkinTexas wrote:

    What S5 success? You can get them 2 for 1 Sprint. Try getting iPhone 2 for 1. No chance. Need I say more. Also, authors who don't understand Apple technology shouldn't write about Apple. You seem to insinuate that Apple "buys" its A7 processor from Samesung. That's like saying Apple buys its iPhones from Foxconn. The A7 is ALL Apple with the ARM architecture licensed from ARM Holdings. In fact, Apple's 64-bit A7 caught everyone flatfooted. Samesung still doesn't have a 64-bit phone. Would you like to rephrase your article about who is following who.

  • Report this Comment On May 24, 2014, at 7:22 PM, makelvin wrote:

    @JHawkinTexas,

    Yeah, I agree with you about the A7. The problem with many of the bloggers and the so-called "journalists" is that they don't have any fundamental understanding about the technology they are writing about. To say that Apple is buying their A7 processors from Samsung definitely implies that the A7 processor is Samsung technology instead of Apple. This is the equivalent of during the time of film photography when the photographer took a picture with their camera and having the film developed at Kodak and therefore the picture that is taken is really the property of Kodak and all rights to that picture belongs to Kodak and not the photographer.

  • Report this Comment On May 24, 2014, at 9:16 PM, Mathman6577 wrote:

    Thanks for the comments.

    JHawk: you are a bit misinformed. I never said the A7 was Samsung technology. I said Apple buys the devices from Samsung. The A7 processor was designed by Apple and is made by Samsung at its foundry in your home state (Austin, TX.) http://en.wikipedia.org/wiki/Apple_A7.

    And I'd be careful making statements that "authors" do not understand Apple (or any one else's) technology. (I don't think you know my background at all. I happen to have a degree in Electrical Engineering and have worked in the electronics field for 32 years.)

  • Report this Comment On May 24, 2014, at 11:14 PM, skippywonder wrote:

    The author correctly uses the word "shipments" but he doesn't stress that these are not sales. Then later he conflates shipments with sales "...was that the increased S5 sales may have been due to …"

    There is no solid evidence that there HAVE been increased sales, so any theories about whether this is good for Apple is pre-mature.

    The author correctly notes that he was careful to use the word "shipments", but he overlooks that he then turns around and treats them like "sales".

  • Report this Comment On May 25, 2014, at 6:21 AM, Mathman6577 wrote:

    Skippy: You are correct. There is no hard evidence about the S5 "success". However, if you read the article carefully you can see my premise was based on Samsung "reports". I never said that "sales" were actually increased.

  • Report this Comment On May 26, 2014, at 1:48 AM, iphonerulez wrote:

    I'd like to know exactly how much money Apple has to make and how many iPhones do they have to sell to not get "hurt" by some rival company selling smartphones. I look at Apple's finances and they really don't seem like they're getting "hurt" by anything. Apple has a market cap of around $520 billion and about $150 billion in the bank. Do those figures indicate that Apple is getting "hurt" by Samsung selling Galaxy S5 smartphones? Honestly. Hewlett-Packard seems like a company getting "hurt" by a lot of things but Apple doesn't look like it's getting "hurt" by anything.

    Why is everyone so concerned about Apple's survival? There must be hundreds of companies less wealthier than Apple that could go out of business long before Apple. Exactly how much money could Galaxy S5 sales take away from Apple if Samsung got really lucky? Taking a billion dollars per quarter away from Apple is almost nothing.

  • Report this Comment On May 26, 2014, at 7:17 AM, lrd555 wrote:

    How many have they sold? Shipments mean nothing. Sold means revenues.

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