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Better Buy: Apple vs. Samsung

By Rick Munarriz – Updated Apr 15, 2019 at 10:03AM

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Back-to-back weeks of the two smartphone giants offering up weak financial updates make this a rough beauty contest, but there's plenty of upside if you know where to look.

It's not just Apple (AAPL 1.56%) warning about sluggish performance these days. Smartphone rival Samsung (NASDAQOTH: SSNLF) is also feeling the pain. The South Korean maker of smartphones, semiconductors, and other consumer tech staples put out disappointing preliminary financial results after Monday's stateside market close.

Revenue will clock in 11% lower for Samsung's recently concluded fourth quarter. Margins are contracting to the point that its operating profit will take a much larger than expected 29% hit. Apple's guidance hosing last month may have been the shot heard around the world, but Samsung's chilly quarter confirms that it's not just iPhone sales that are softening these days. 

A class at an Apple Store.

Image source: Apple.

Letting the chips fall where they may

Apple isn't at its best. The stock has plummeted 37% since peaking in early October, and last week's uninspiring financial update isn't making things any easier. CEO Tim Cook's letter to investors warned that revenue would land at roughly $84 billion, well below the $89 billion to $93 billion in guidance it offered up two months ago and a 5% decline from the $88.3 billion it delivered on the top line a year earlier. 

Cook is placing the blame squarely on the timing of iPhone releases, the strong dollar, and weakness in emerging markets for the sloppy holiday quarter, though obviously Apple knew all about the iPhone timing issue when it put out its guidance in the first place. Revenue would have actually increased if not for a sharp decline in Greater China. Back out the iPhone and revenue rose 19% in the quarter, including another record showing for its booming services revenue as well as bar-raising performances in wearables and Macs. Apple is in a funk, but it's certainly not broken. 

Samsung is in a bigger world of hurt, and not just because its quarterly revenue is falling twice as hard. This may be only the third time that it has posted a top-line quarterly decline in the past three years, but it's also the largest slide since the first quarter of 2015. Samsung blames the cutthroat smartphone market for some of the softness, but it also points to sluggish memory chip sales worldwide as a back breaker. 

Apple and Samsung don't have a lot in common beyond mobile gadgetry, though it's worth noting that Apple likely generated more in iPhone revenue than Samsung did in all of the roughly $52.5 billion in revenue that it rang up across all of its businesses during the same three-month period. 

Apple and Samsung aren't the rivals that they used to be back when the iPhone battled Samsung's Android-fueled handsets for smartphone supremacy. Apple is a buyer of Samsung chips and displays, and the two tech bellwethers announced a deal over the weekend in which Apple iTunes movies and TV shows will be available for streaming on Samsung smart TVs.

For investors, the smart bet here is Apple. Double-digit percentage growth outside of its iPhones and respectable margin guidance offer an easy way back for Apple's return as a market darling. We may have to wait until later this year to get a better read on iPhone popularity when the new models roll out, but Apple stock is trading at a steep-enough discount to its early October all-time highs to warrant patience at this point. Samsung -- outside of being a harder stock to trade for some stateside investors -- is in a bigger hole.

Check out the latest Apple earnings call transcript.

Rick Munarriz owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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