Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is Apple, Inc. Crushing Samsung's Opportunity in China?

Samsung (NASDAQOTH: SSNLF  )  unveiled some unfortunate news for investors earlier this week. Operating profits fell 24% to a two-year low. The driver? There were a few, but among them, this was key: waning demand for its smartphones, particularly in China. Meanwhile, analysts are expecting Apple (NASDAQ: AAPL  ) to report record quarterly iPhone sales for the same period. Is Apple stealing Samsung's profit opportunities in the smartphone market?

iPhone 5s. 

How Apple could be snapping up Samsung's market share in China
Just before the start of 2014, Apple announced it would be adding China Mobile as an authorized carrier for the iPhone in China. This was big news. China Mobile isn't just any carrier. It's the world's largest carrier ... by far. As of May 31, the company boasted 787.3 million wireless subscribers, adding 2.7 million in that month alone.

With China Mobile finally selling iPhones, the implications for Apple are huge. Not only will it tap into pent-up demand for the iPhone on the network, but the iPhone's availability on the network came simultaneously with the beginning of the carrier's 4G LTE rollout. And while the 4G rollout is still in its early stages, it's already proving to be a promising growth opportunity for smartphone manufacturers. The carrier's 4G customers have ballooned from zero in January to 8.1 million by the end of May.

Apple store in China.

But, unfortunately for Samsung, Apple could end up being the major beneficiary of this booming opportunity.

Consider this statement from Samsung when it released its early preview of its poor quarterly results last week.

In China, channel inventory level increased due to weak seasonal demand, 3G demand declined ahead of the expected expansion of 4G LTE during the second half and intensified price competition among local players.

Sure, some of these 3G customers that are holding out for the expected 4G LTE rollout could be planning to upgrade to one of Samsung's flagship smartphones, but there is also a great chance they may be planning to buy one of the rumored iPhone 6 phones. The two next-generation iPhone models will reportedly come in larger screen sizes: a 4.7-inch version and a phablet-like 5.5-inch version. Given the popularity of smartphones with larger displays in China, the iPhone 6 line is destined to be a homerun in the country. When the iPhone 6 launches, the pent-up demand for both the iPhone and a 4G-compatible phone will likely serve as a catalyst for a large number of iPhone upgrades.

Further, in the premium smartphone market in China, Apple's iPhones have already proven to be the most sought out device. Of the 27% of $500 plus phones in China, approximately 80% of them are iPhones, according to Chinese app analytics company Umeng.

iPhone 5c. Image source: Apple.

If Apple's year-over-year sales in China for its third fiscal quarter are up significantly (and they likely will be since China Mobile wasn't an authorized reseller of iPhones in the year-ago quarter) it would be safe to assume that Apple is probably already playing a key role in putting a lid on Samsung's opportunity.

Also worth noting, as Apple's iPhone lineup ages, the company will have more capable smartphones to compete with Samsung at the mid-price range, too.

And worst of all for Samsung (and best of all for Apple), the market share opportunity that Apple is likely to steal from Samsung will not be at the less-profitable low-end, instead it will be from the lucrative sales of Samsung's flagship smartphone lines.

This small company may win big on Apple's next big product launch
Apple's so-called iWatch will almost undoubtedly shake up an entire industry. But one small company may benefit from the likely enormous adoption of these smart wearable devices more than Apple. Even better, its small stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, just click here!

Read/Post Comments (3) | Recommend This Article (3)

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 July 10, 2014, at 12:46 PM, zippero wrote:

    Great article, Daniel! Samsung's timing on 4G in China was terrible, while Apple's will be perfect. Samsung's profit margins are headed to Xiaomi and Lenovo levels (<1%), while Apple's share of all smartphone profits approaches 100%.

  • Report this Comment On July 10, 2014, at 1:29 PM, twolf2919 wrote:

    It isn't Apple who is eating Samsung's lunch in China - it's Xiaomi and, to a lesser extent, Lenovo who are crushing Samsung in China.

    Samsung isn't leading smartphone sales in China because of its high-end phones, it's leading in China because of its many cheap models. Companies like Xiaomi are undercutting Samsung in price while providing the same features as Samsung's high-end offerings. Unlike Apple, Samsung is not considered an "aspirational" brand, so the folks who previously paid for Samsung, simply move to the cheaper alternative.

  • Report this Comment On July 11, 2014, at 12:11 PM, aardman wrote:

    "Of the 27% of $500 plus phones in China, approximately 80% of them are iPhones."

    Can all those people who keep complaining that Apple should offer a low cost phone to fight the 3rd World Smart Phone Wars please shut up now?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3023583, ~/Articles/ArticleHandler.aspx, 8/28/2015 11:17:42 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Daniel Sparks

Daniel is a senior technology specialist at The Motley Fool. To get the inside scoop on his coverage of technology companies, follow him on Twitter.

Today's Market

updated 2 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
AAPL $113.29 Up +0.37 +0.33%
Apple CAPS Rating: ****
SSNLF $875.00 Up +25.00 +2.94%
Samsung CAPS Rating: ***