Finally Samsung overtakes Apple, thanks to Galaxy S4 and maturing Android

Long lines at Samsung store

Once relegated to cheap, low-margin phones, Android’s leading vendor Samsung has now overtaken Apple as the world’s most profitable smartphone vendor. Samsung’s estimated $5.2 billion in profits from phone sales compares favorably with Apples’s estimated iPhone profits of $4.2 billion, according to Strategy Analytics — the first time in nearly four years that the iPhone hasn’t held the profit crown.

Samsung’s profit lead is driven by a continuing boom in unit volume. Strategy Analytics estimates its smartphone market share grew to 33.1% on sales of 76 million phones during the quarter. Apple is estimated to have a 13.6% share on sales of 31.2 million phones. While Apple sold nearly 20% more phones than the same quarter a year ago, it hasn’t kept pace with Samsung’s torrid growth — especially in the fastest growing overseas markets.

More worrying for Apple than losing its profit crown is its relative weakness overseas. Sales in bellwether market China were actually down $3.6 billion quarter-to-quarter, with Europe and the rest of Asia also weaker. Without introducing less-expensive alternative versions of its iPhone, it is likely Apple’s international market share will continue to erode as less-expensive Android phones continue to improve in functionality.

Of course, this quarter represents a trough for Apple, pending expected new product announcements in the fall. It is similarly a bit of a peak for Samsung as its flagship Galaxy S4 has just rolled out, but the numbers are a wake up call that the iPhone-dominated smartphone sector is now up for grabs. Many developers have been focusing primarily on iOS because of its large, unified market share and issues with Android fragmentation. With the Android platform settling down and Google taking more control of its APIs, these sales figures will provide additional incentive to shift resources towards Android development.

Apple and Samsung stock prices compared to NASDAQ

In response to analysts’ questions about the growing clamor for a less-expensive iPhone, Apple CEO Tim Cook took a page from Amazon’s Jeff Bezos’ book, essentially telling analysts to “trust me.” However, unlike Steve Jobs, Cook hasn’t earned that kind of trust from the markets yet, which partially explains Apple’s continued stock price slide. Nearly flat since Cook was announced as CEO in 2011, Apple’s stock (AAPL) is down over 20% in the last year, while both the NASDAQ and Samsung are up by about the same amount.

Conventional wisdom says that Apple either needs to innovate in a new, blockbuster category — perhaps the much-rumored Apple iTV — or fix the bleeding in smartphone market share with lower-cost models for international markets. Apple is a company that has often proved conventional wisdom wrong, but if it’s planning to do so this time it will have to do it under a new CEO.

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