Samsung's CFO Said Something That Might Concern Apple Shareholders

Samsung's (NASDAQOTH: SSNLF  ) earnings report could be ugly. According to The Wall Street Journal, the Korean tech giant's chief financial officer told a group of reporters on Wednesday that the company's upcoming earnings report isn't "look[ing] too good."

As a major competitor to Apple (NASDAQ: AAPL  ) , competing with the company in many of the same markets, Samsung's poor results could be cause for concern for Apple shareholders.

Samsung is a diversified business, but focused on mobile
Unlike Apple, which makes only a handful of products, Samsung is an extraordinarily diversified business, offering everything from refrigerators to televisions.

But increasingly, Samsung's mobile products have taken center stage. Like Apple, Samsung's smartphones and tablets now account for the majority of the company's revenue and profit. Last quarter, of Samsung's $8.2 billion operating profit, $6.2 billion was derived from its mobile division.

If Samsung is indeed struggling, it is likely because its mobile business may not be doing as well as analysts and investors had hoped.

Samsung's problems may stem from emerging markets
The Journal notes that analysts at KTB Investment & Securities recently lowered their forecast for Samsung's earnings due to weakness in the emerging markets. Although Samsung is commonly known for its high-end Galaxy handsets in the west, many of the phones it sells are budget models aimed at emerging markets.

Samsung's cheap phones allow it dominate emerging markets like China. According to research firm Counterpoint, Samsung is the largest seller of smartphones in China, with an 18% market share. Apple, in contrast, comes in fifth, with just 10% of the market.

If Samsung's results are the byproduct of poor emerging market performance, it may not reveal much about Apple's current quarter. Although Apple still offers cheaper, older models of the iPhone, it has nothing that competes directly with Samsung's lower-end Galaxies. The Galaxy Star Pro, for example, retails for around $100 in India -- Apple's iPhone 4S is several times more expensive.

At the low-end, Samsung is facing growing competition from Asian vendors like Lenovo, Xiaomi, Oppo and ZTE. Offering handsets running the same, or similar versions, of the Android operating system that powers Samsung's Galaxies, these low-cost vendors may be stealing Samsung's emerging market customers.

Apple investors should watch Samsung's results
Nevertheless, Apple investors should still be mindful of Samsung's earnings when the company provides second quarter estimates next month. If the smartphone and tablet markets are contracting, particularly at the high-end, it wouldn't be a good sign for Apple's business.

Last quarter, the iPhone accounted for more than half of Apple's revenue, while the iPad brought in nearly 17%. Factoring in iTunes, which is largely a derivative of iPhone and iPad sales, more than 80% of Apple's revenue is a byproduct of its mobile device sales.

Apple shares have been on a tear recently, rising more than 17% in the last three months. Much of that has likely been due to the company's aggressive capital return program, and hope for future products, including the iPhone 6 and iWatch.

But fundamentally, Apple is still a company that depends on sales of tablets and smartphones. Samsung isn't in an identical situation, but it's the closest proxy, and if Samsung is struggling, Apple may be in a similarly precarious position.

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  • Report this Comment On June 29, 2014, at 1:46 PM, eldernorm wrote:

    OMG... Are these bloggers aware of anything but blog hits???

    Samsung is losing money in the low price asian market due to competition. So Apple should worry???

    Samsung has been primping "Market Share" for a long time doing a BOGO effort to increase shipments, NOT SALES. And they make cheap low profit units to get market share.

    the blogger says that Apple does not play in that market..... yet they should be wary cause....... they don't play in that market?????

    Sales go up and down each quarter for a number of reasons. If Apple sales are normally down at this time, then they will be normally down. Its not school season yet, that starts shortly.

    So I would just write this off to another blogger with nothing to share but a deadline to meet.


  • Report this Comment On June 29, 2014, at 3:27 PM, OSXX wrote:

    samsung dumps there product in the market, many of the phone and pads loos value within 90 days, apple has a good resale value and only lowers the price of the iphone when a new model is coming out every two years. Also the quality of samsungs phone product is very low.

  • Report this Comment On June 29, 2014, at 6:25 PM, bugnuts wrote:

    Mattera needs to find a new schtick. Seeing bogeyman haunt Apple at every turn is silly and boring.

  • Report this Comment On June 29, 2014, at 6:41 PM, marv08 wrote:

    Samsung had a chance to steal some of the high end with the S5 and they blew it. I know several people still using a S3, and they all fell that Samsung failed to provide a reason to upgrade for two consecutive years. It is still cheap plastic and way overpriced for that. People in Asia who want one single device as a smartphone and tablet are more interested in the Note line anyhow.

    And things will only get worse for them with the arrival of the iPhone "6" (if that's the name), since there will now be a better quality competitor with a big screen.

    Samsung's "success" depends a lot on enormous marketing expenses (more than 3 times those of Apple). These are not only for ads, but for bundling, rebates and kickbacks to vendors. Buying market share quickly becomes a burden, if you can't deliver products that will make customers come back.

    Apple has none of these problems. Yeah, there will be some seasonal drop, because the world is awaiting new iPhones and iPads in the fall. The difference is that the 5s is still going for its original price and sells strongly, while the S5 is already heavily discounted and needed more than a quarter to get anywhere close to the iPhone's first two weeks of sales.

    If Samsung wants to succeed, they need to at least deliver something that is competitive with the high end competition (HTC, LG, Sony) and clearly above Motorola's budget stuff. The S5 does neither.

  • Report this Comment On June 30, 2014, at 1:04 AM, GaryDMN wrote:

    Samsung's margins are low and they lost Apple's fab business, which make a difference of billions of dollars.

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Sam Mattera

Sam has a love of all things finance. He writes about tech stocks and consumer goods.

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