Is Samsung’s Galaxy Alpha a Threat to iPhone Dominance?

Samsung appears to want to directly compete with Apple's iPhone. Here's why Apple investors should take this threat seriously.

Aug 5, 2014 at 3:00PM

The leaks keep rolling in on Samsung's (NASDAQOTH:SSNLF) Galaxy Alpha. If the rumors are to be believed, Samsung plans to launch the device this month -- ahead of Apple's (NASDAQ:AAPL) usual September upgrade cycle. While the product specs are still being confirmed, Samsung clearly intends this to compete with Apple's iPhone 6. Apple investors would be wise not to discount this product.

Another iPhone killer? We've heard this before
To be fair, Apple investors have heard this before: BlackBerry, HTC, Google, and Nokia, among others, have held this dubious title, and none of them knocked Apple off its perch. While many experienced success early in the smartphone revolution, more recently the market has become for all intents and purposes a duopoly.

A surprising Canaccord Genuity study seemed to confirm this. When it comes to smartphone profits, probably the best measure of dominance, the report showed that Apple and Samsung had the only profitable smartphones in the third calendar quarter of last year -- taking an astonishing 109% of all smartphone profits. All other handset vendors were left out in the cold during that period.

And as far as Samsung's new effort is concerned, it appears it brings to the table an improved, but not game-changing device. In addition to the new 4.7-inch display is a new metal-based bezel, the camera sports a 12 megapixel camera with autofocus, LED flash and a secondary 2.1 megapixel camera. As far as connectivity goes, it continues to have a differentiator from Apple with the Micro USB port and also continues to bring Wi-Fi and Bluetooth 4.0 to the device.

The problem: Apple is becoming increasingly reliant on iPhones
Compounding the urgency is Apple's increasing reliance on iPhones for revenue. If you look at Apple over the last eight quarters, you can see the company leaned on that signature product. The chart below will give you context:


Source: Apple's 10-Qs/Data Sets.

Although Apple improved in its diversification last quarter, with iPhone revenue clocking in at 52.7%, Apple reported over 50% from one product in seven of the last eight quarters. Last quarter, the reported iPhone sales percentage was nearly 650 basis points higher than the fourth fiscal quarter of 2012.

Even worse, in the high-volume quarters, which for Apple is the holiday-laden fiscal first quarter, the percentage of revenue provided from the iPhone typically jumps over 55% -- as was the case in 2013 and 2014.

In some ways, Apple fans have benefited from a higher percentage of revenue going toward the iPhone. Multiple third-party sources have stated that the iPhone is the company's highest-margin product. If so, Apple has increased its gross margins -- once a cause for Wall Street concern -- merely through favorable product mix. However, overreliance on a single product can make the investment riskier, especially in the face of U.S. smartphone saturation and possible direct competition.

Apple investors should be informed, not afraid
Although Samsung has been Apple's most worthy competitor with its Galaxy line, it doesn't seem the cell phone market is a "winner take all" proposition. Rather, it appears more suited for a comfortable duopoly at this point. In addition, besides a few upgrades, it appears the only tangible difference to Samsung's new phone is that the aforementioned size is smaller than its predecessor -- the Samsung Galaxy S5 -- that clocks in at 5.1 inches to compete with Apple's rumored 4.7-inch display.

However, as Apple's iPhone sales as a percentage of company revenue continues to hover at a high level, Apple fans should watch for any threat to the company's iPhone dominance. CEO Tim Cook has said that Apple is close to unveiling new products -- the tech giant's investors should hope he's right.

Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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