Unprecedented demand for Apple's (NASDAQ:AAPL) iPhone 6 may have taken a toll on Samsung's (NASDAQOTH:SSNLF) mobile profits, but Apple doesn't appear to be the only company at fault. Other smartphone makers using Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android operating system have seen their shipments and market share grow in recent quarters, as Samsung's long-standing dominance of the Android ecosystem has slowly eroded.
Samsung's shrinking mobile profits
Earlier this month, Samsung warned that its second quarter earnings would fall short of analyst expectations. Operating income had declined 4% on an annual basis, it said, while sales slumped more than 9%. The decline was likely fueled by its mobile division, which has lagged in recent quarters. In October, Samsung reported a stunning 60% annual profit decline. Its mobile division in particular saw its profit fall by more than 70%.
These declines followed the release of Apple's iPhone 6 and iPhone 6 Plus -- the first smartphones from the Cupertino tech giant to sport larger screens. Many analysts have blamed Samsung's woes on Apple's decision to release larger iPhones and to some extent, that may be the case. But Samsung's problems extend beyond Apple. In fact, Samsung's shrinking mobile profits predate the release of the iPhone 6 by several months. Last July, Samsung turned in disappointing second quarter results, with its profit falling more than 20% on an annual basis.
LG, Huawei, and Xiaomi have enjoyed rising shipments
Apple's iPhone has enjoyed stellar growth over the last three quarters. Last quarter in particular saw iPhone revenue rise 59%. Apple's management has attributed some of this strong demand to Android-switchers -- those that previously owned an Android phone, but switched over to Apple's handset. "We experienced the highest switcher rate from Android that we've ever measured," Apple's CEO Tim Cook said on the company's earnings call.
Apple's recent results have been extraordinary, but other handset makers have been almost equally successful. This week, Chinese handset-maker Huawei said shipments of its high-end Android smartphones (those priced over $300) rose 70% on an annual basis during the first half of the year. In total, its smartphone shipments rose 39%, with almost half of its sales coming from outside China.
Huawei's Chinese rival Xiaomi has also enjoyed explosive growth. Earlier this month, it announced that it had sold 34.7 million smartphones during the first six months of the year, a gain of 33% on an annual basis. That's down significantly from its growth last year (in 2014, Xiaomi's handset sales rose 227%), but still better than the overall market. Research firm IDC expects smartphone shipments to grow just 11.3% in 2015.
Samsung has seen its share of many international markets dip. Most notably in China (where its market share has been cut in half), but also in countries such as India. Analytics firm Cybex Exim Solutions said Samsung's share of the Indian smartphone market fell to 21.5% last quarter, down from 28% in the first quarter.
Then there's LG, whose G4 appears to have captivated American buyers. Last month, Kantar Worldpanel reported that Samsung's share of Android smartphones sold in the U.S. rose from 52% from the beginning of February to the end of April, to 55% from the beginning of March to the end of May. The release of its flagship Galaxy S6 no doubt contributed to the increase. But LG's gain was even more impressive, as its share of the market nearly doubled.
Two different business models
Had it not faced LG's latest phone, Samsung's market share might have increased even more. Unlike Apple, Samsung does not have control over its handset operating system. Buyers looking for an Android phone have plenty of manufacturers to choose from -- not just LG, Huawei, Xiaomi and Samsung, but also Motorola, Micromax, and HTC (among others). Apple faces competition from these firms, at least indirectly, but buyers that want an iOS-powered handset have no choice but to go with the iPhone.
For Google the development is not a bad thing. It wasn't long ago that observers worried about Samsung taking control of Android away from Google, forking it or modifying it to suit its own purposes. In February, 2013, The Wall Street Journal reported that Google executives feared the rising power of Samsung's Galaxy brand.
Times have certainly changed.