Over the past year, Apple's (NASDAQ:AAPL) stock rallied nearly 50%, while shares of Samsung (NASDAQOTH:SSNLF) fell over 7%. Over-the-counter shares of Samsung fared even worse with a 21% decline due to the rising Korean Won. Looking ahead into 2015, will this trend continue, or will Samsung find a way to reverse its losses against Apple?
Apple: Bull vs. Bear
There are plenty of reasons to be bullish on Apple in the coming year. Robust demand for the iPhone 6, which fueled a 16% YOY jump in iPhone unit sales last quarter, should remain strong throughout 2015. Forecasts for the Apple Watch, which will arrive in the spring, range from 10 million (Gene Munster, Piper Jaffray) to 60 million (Katy Huberty, Morgan Stanley). Since the Apple Watch will only be compatible with iPhones, it should lock in existing users, lure in new ones, and help encourage the adoption of Apple Pay.
Apple is also expanding its walled garden with HealthKit and HomeKit. HealthKit pulls data from fitness apps, wearable devices, and electronic health records into a single Health app. HomeKit is a smart home platform which allows devices like light bulbs, locks, and appliances to be monitored and controlled via iOS devices.
Both industries could grow substantially over the next few years. The mobile health market, which includes all apps, wearables, and monitoring devices, is expected to grow from $1.95 billion in 2012 to $49 billion by 2020, according to Grand View Research. Juniper Research forecasts that the global smart home market will grow from $33 billion in 2013 to $71 billion in 2018. If HealthKit and HomeKit are successful, Apple could tap into the growth of both markets. Apple Carplay, which lets iPhone users mirror their smartphone displays in cars, could also complement that growth.
However, Apple's growth could still be derailed if iPhone sales unexpectedly decline, the Apple Watch falls short of expectations, or if HealthKit and HomeKit get tripped up by security and privacy concerns. Apple will also need to increasingly rely on rising iPhone and Mac sales to offset slumping iPad sales. If this balancing act doesn't work out, Apple's stock could slip.
Samsung: Bear vs. Bull
In 2014, Samsung lost market share in critical markets like China to competitors like Xiaomi, Lenovo, and Huawei, which flooded the market with cheaper handsets with comparable specs. In the second half of the year, Samsung lost ground in the high-end market to Apple, which launched the iPhone 6 Plus to nullify its primary advantage of larger screen sizes.
As a result, Samsung's global market share fell from 32.5% in the third quarter of 2013 to 23.8% in the third quarter of 2014, according to IDC. During that time, Apple's market share only slipped from 12.9% to 12%. Xiaomi, which toppled Samsung as China's top smartphone maker in August, saw its market share more than double from 2.1% to 5.3%.
That decline took a bite out of Samsung's earnings. Last quarter, the mobile division's revenue fell 33% YOY while operating profit plunged 74%. As a result, Samsung's semiconductor business became its largest profit driver, accounting for 56% of the company's operating profit, compared to 43% from its mobile division. Samsung's mobile division accounted for 52% of Samsung's top line during the quarter.
Samsung hopes that unique premium phones like the Galaxy Note Edge and cheaper emerging market phones like the Galaxy S Duos 3 can help it get back on track, but it's a steep uphill battle. Samsung also hopes that new products like smartwatches, a VR headset, smart glasses, and smart home compatible products can help it diversify away from smartphones, but there's no guarantee that scattergun strategy will work.
On the bright side, Samsung is faring better in tablets than Apple. According to IDC, Samsung's global tablet market share slipped from 19.3% in the third quarter of 2013 to 18.3% in the third quarter of 2014, although overall shipments rose 6.5%. Apple's share, by comparison, fell from 29.2% to 22.8%. The global Chromebook market, which Samsung controls 65% of, is also expected to grow faster than the one for Windows laptops.
In my opinion, Apple will keep climbing in 2015 as Samsung stalls out or declines. Apple has major catalysts on the horizon, while Samsung simply faces a lot of obstacles. In terms of valuations, Apple is also cheaper at 18 times trailing earnings with a 5-year PEG ratio of 1.4. Samsung's OTC shares have a P/E of 37.
Samsung's smartphone woes, its flat-growth semiconductor business, and its low-margin consumer products division are bright red flags for investors considering picking up shares of the South Korean tech giant. Meanwhile, Apple's in-demand iPhones and Macs are poised for growth, especially as the company continues to integrate wearables and smart-tech solutions for users.
Leo Sun owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.