If you've been following the smartphone market lately, you're probably aware that Samsung (OTC:SSNLF) rules the roost. The company followed a bifurcated strategy, releasing the Galaxy line to compete with Apple (NASDAQ:AAPL) at the high end and a host of phones to compete with various OEMs at the low end in developing markets.
After initially experiencing success, Samsung's strategy is starting to show signs of wear. Over the last two fiscal quarters -- its third and fourth, respectively -- the South Korean conglomerate reported operating profit decreases of 60% and 37% year over year. The company specifically blamed its smartphone operations for the decrease as it seeks to streamline the business to better compete against challengers.
One thing Samsung could always depend on was its worldwide leading market share. However, if the recent IDC and Strategy Analytics data is correct, Apple is quickly gaining ground on its arch nemesis.
Neck and neck competition, but Samsung is still on top according to IDC
In both surveys, Apple had phenomenal growth. IDC reported Apple grew units shipped an amazing 46% year over year -- from 51 million to 74.5 million -- and provided 19.85% of all smartphone shipments during the fourth calendar quarter. Strategy Analytics reported the same numbers shipped for Apple, keeping its year-over-year growth estimate the same but smartphone shipments percentage was lower (19.6%) due to a higher estimate of the total smartphone market.
For Samsung fans, it appears some of that growth was at the expense of Galaxy sales. Unfortunately, IDC found Samsung's units shipped fell to 75.1 million in the fourth quarter of 2014, down 11% from 2013's fourth-quarter figure of 84.4 million. Even worse for Samsung fans, it was the only company in the top five to have a year-over-year drop. However, at least Samsung could still claim the No. 1 spot according to IDC, although Apple is much closer on its heels than before.
Strategy Analytics reports a fourth-quarter tie
More shocking, however, was Strategy Analytics estimates. As previously mentioned, Apple's units shipped figures are the same, but Samsung's totals were slightly but noticeably different. Strategy Analytics reports Samsung sold 86 million units in the fourth quarter of 2013 and 74.5 million this quarter -- essentially, Strategy Analytics reported a tie between Apple and Samsung in the fourth calendar quarter. And while Apple fans say that Apple doesn't care about market share -- incorrectly so, I think -- for Apple to tie Samsung in this survey is an amazing feat.
Like IDC, Strategy Analytics found Samsung as the only vendor to report a year-over-year decrease in units shipped in the named companies (Strategy Analytics only names the top four smartphone vendors). In addition, Samsung dropped from a 29.6% market share in the fourth quarter of 2013 to 19.6% in last year's fourth quarter. For perspective, Apple's market share figures were 17.6% and 19.6%, respectively, as Apple's unit sold growth outpaced the strong growth of the greater smartphone market.
Can it continue?
The question for investors is: Can this continue? And both sides have merit: For Apple fans, CEO Tim Cook's comments that only 15% of owners of older iPhones have upgraded to the iPhone 6 and iPhone 6 Plus, making the upgrade/refresh cycle argument a strong one. Cook also mentioned that those switching from another OS are mostly coming from Android. That's not entirely surprising considering Android's immense market share, but still it's not positive news for higher-end Samsung sales.
For Samsung, this is where its famous bifurcated strategy helps the company's units shipped figures. Unlike Apple that releases a new iteration only once a year -- in the late third quarter/early fourth quarter in most markets -- Samsung releases smartphones on an ongoing basis tailored to individual markets by considering disposable income, demographics, and various other market specifics.
And even if Samsung is able to reverse its units sold decline, there's no guarantee shareholders will be rewarded. Unlike Apple that moves only wildly profitable high-end units, Samsung moves both razor-thin profit units and high-end units. In the event the product mix skews to the low end, Samsung could increase its units sold but still find itself performing poorly on fundamentals. Samsung may still be the champion, but it's looking more like a paper champion every passing day.