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Mobile Wars: Samsung's New iPhone-Killer

By Alex Dumortier, CFA – Feb 25, 2014 at 10:15AM

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Samsung and BlackBerry present new handsets at the Mobile World Congress.

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

U.S. stocks are lower on Tuesday morning, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (^DJI -1.40%) down 0.22% and 0.19%, respectively, at 10:15 a.m. EST. Meanwhile technology investors are digesting the information coming out of the Mobile World Congress, which began yesterday in Barcelona and will continue through Thursday.

Samsung used the event to launch the latest iteration of its flagship smartphone, the Galaxy S5, which will be available in the U.S. (and close to 150 other countries) on April 11. Iteration is the operative word here as the S5 doesn't introduce any revolutionary features; instead, Samsung focused on improving existing functionality that is integral to smartphone use.

As such, the screen is larger (5.1 inches), the camera is improved, and battery life has been extended. (On that front, there is also a low power mode that reduces the phone to its essential communications functions and takes the screen to monochrome.) Amphibian users will also be happy to learn that the S5 is waterproof. In a nod to its main rival for high-end smartphones, the Galaxy S5 boasts a fingerprint reader for security, similar to that on Apple's (AAPL -0.80%) iPhone 5S.

I like that Samsung has chosen to nail down basic aspects of the smartphone, but I wonder if the lack of any "wow factor" will deter existing customers' propensity to upgrade from the S4 to the S5 -- let alone convince users of competing handsets to make the switch. Furthermore, it may not be enough to counter the slowdown at the top end of the smartphone market.

Indeed, the lower end of the market is growing faster; it should come as no surprise that most of the world's population cannot afford a $500-plus smartphone. This is the segment BlackBerry (BB -6.92%) has selected in an effort to revive its fortunes on the hardware front. In Barcelona today, the ailing Canadian device maker introduced a cheaper handset developed in partnership with Taiwanese electronics manufacturer Foxconn. The device, which is aimed at emerging market consumers, will first go on sale in Indonesia at a cost of less than $200.

I appreciate that BlackBerry has transferred the inventory risk to Foxconn, but this emerging market growth strategy smacks of desperation: I simply don't see how BlackBerry will differentiate itself at the highly competitive lower end of the market.

Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on Twitter @longrunreturns. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.

Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$33,947.10 (-1.40%) $-482.78
Apple Stock Quote
$146.63 (-0.80%) $-1.18
BlackBerry Stock Quote
$4.84 (-6.92%) $0.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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