“Last year, when everyone was clamoring for a so-called cheaper iPhone, Apple CEO Tim Cook said, ‘We’re not in the junk business.’ This was the market Samsung flooded with cheaper alternatives to Apple’s high-end devices,” Richard Saintvilus reports for The Street. “According to data released by research firm IDC, Samsung has already shipped 85 million smartphone units in the first quarter… more than the combined total of Samsung’s next four competitors, including Apple. Samsung’s tactic has been clear. It wants to give customers two or three products from which to choose before Apple releases its new iteration. In many respects, this tactical move has worked to perfection… All told, Apple was being attacked in both hardware and software, which explains Apple [shares] 40% decline from Apple’s peak of $705 to below $400. But that’s as far as the credit should go. None of this maneuvering has meant anything to Samsung’s bottom line.”
“Consider, Samsung just reported its first-quarter earnings results, which revealed its second consecutive quarter of declining year-over-year profits. Although the results were inline management’s prior guidance, Samsung is now feeling the effects of high-end device saturation. Operating profit came in at $8.2 billion, reflecting a 3.3% year-over-year decline,” Saintvilus reports. “Likewise, in the January quarter, although Samsung did post an impressive profit of $8.24 billion and a 1.5% year-over-year rise in revenue, there was still a 2.5% decline in mobile revenue. By contrast, in Apple’s comparable quarter, not only did revenue increase 5% year-over-year, net income climbed 7%. And this was due to an 17% surge in iPhone unit sales.”
“And despite a $40 sequential decline in average selling prices, this had little impact on Apple’s gross margins. Management figured out ways to adjust the mix to achieve profitability goals. More than anything, Apple’s strong margins has spurred the recent run-up in its stock,” Saintvilus reports. “The volume has meant very little to Samsung’s bottom line… The fact that Apple still has margins hovering around 37% is a testament to the quality of the company’s products and management’s ability to market to those who can see the value in those products. This is also why Apple does not have to enter the junk business or care about market share. Apple is the only one making any money and putting points on the scoreboard… it’s not a close race. It never has been.”
Read more in the full article here.
MacDailyNews Take: Don’t worry, slavish copier, maybe you can make it up on volume – you know, just like Mikey Dell.
It’s always nice to see someone comparing Samsung to Apple in the only race in which they’re both entered. Profits are the name of the game, not unit shipments for unit shipments’ sake.
As our own SteveJack wrote on April 28th:
Imagine being entered in the marathon, but being measured by how high you jump during the race! You’d feel like Apple. Being measured in the wrong way, based on the criteria of an event in which you’re not interested, much less even competing, and not versus individual racers, but against a lumped together “team” that doesn’t exist – it’s total nonsense!
Apple dominates the long race in which they are entered: The race for valuable customers from whence dominant profit share springs. Market share is a race that, by itself, tells us little to nothing about Apple’s fitness.
For Samsung market share is important of course. They offer no particular advantage over their Android competitors or indeed win phone competitors and as such their main weapon is to compress that market around themselves making as much as they can out of it while making competition as expensive as possible for others in or entering that market. Thankfully Apple only overlaps a small and high end part of that market so as long as it is sensible is barely affected at all. Only complacency can drag them into that whirlpool.
I agree, Samsung is winning their battle of eliminating Android competitors and making huge profits (by any measure but Apple’s).
If Samsung can eliminate the other Google/Android suppliers they will gain huge leverage on Google who desperately needs their Maps, Search, etc. to remain prominent on Android. Samsung will betray Google with replacements wherever that can, as fast as they can.
The Apple-Samsung battle gets the press, but so far the blood in the water is mostly from other players. Samsung’s patent losses amounted to a hand slap after they already got the cookies they wanted. And Samsung has a safe haven: Apple will not fight them for their low-end customers. So any fighting will be over the midrange.
Revenue – Expenses = Sole Criterium for Assessment
Anyone using different metrics is an idiot or jerkin’ it for hits.
Wall Street doesn’t seem to be smart enough to notice that there are a whole load of things going wrong at Samsung. The new S5 is such a flop that the designer had to go. Their top tier phones are failing to make headway against iPhones. The Galaxy Gear has been ridiculed. Just to make things worse, the world’s largest purchaser of components is progressively placing massive orders elsewhere.
Samsung are aware that their business is not as profitable as it used to be and they are having to cut back on their marketing budget. Without omni-present marketing or a truly stand-out product, Samsung is only managing to sell low-margin phones to low-end customers, so while they are selling many more phones than Apple do, they make nothing like the profit that Apple makes. The most important thing that Samsung has not been seen to copy from Apple is Apple’s extraordinary business model.
You might imagine that Wall Street would notice when a company is starting to go wrong, but Wall Street and the analysts have convinced themselves that Apple are in trouble and that Samsung are doing well.
Get two cheap plastic 32-bit devices for the price of 1…anyone remember Dell undercutting everyone in cheap volume?? Worked for awhile, but didn’t last and hurt all the other Windows box makers long term. M$ and Dell singlehandedly stagnated the industry and let everyone else across the globe catch up. Smell no!
I’m sorry to burst your bubble, but M$ is now M¢.
Catch up to what? The Mac was always miles ahead of that bad Mac copy called Windows.
I’d like to agree with you, but since 2009 the Mac platform hasn’t improved at all. And the dirty secret is that ~75% of Macs emulate Windows because most of the business world requires it. Lastly — and this is my biggest gripe of all — to the objective reviewer, Apple has not made the Mac dramatically clearly better in capability, stability, user friendliness, nor appearance versus Windows 7. But Windows still has by far the greater app selections, with most developers serving the latest to Windows first. That is truly sad, because up until Snow Leopard, OS X was unmatched by Windows. Apple needs to setp up their focus on making OS X a superior desktop OS and actually market it to not just consumers, but to business and education markets as well. People hate Windows 8, but Apple isn’t stepping in and showing companies a better computing value. If Apple did, then you’d see more 3rd party apps offered for the Mac platform.
The funny thing is there’s not one Windows app I need to use that isn’t well covered already on the Mac. I have loaded Windows on my Mac machines before but stop doing it because of all the Windows cobwebs gathering on the software. It was the loneliest OS on my Macs so it went to free up space. Windows is nothing to brag about by any means but I’m preaching to the choir here. That said there are things I’ve preferred in each of the last Mac OS’s but ultimately whether using Leopard, Snow Leopard, Lion or Mavericks there have been few obstacles and once you embrace the new you usually find it’s to your eventual liking. Ands it’s a Mac loaded with Windows that has the greatest apps offerings but it’s not as though the Mac Platform is starved for apps. Hardly.
The MO for most tech hardware companies is to achieve as much volume in sales as possible. Both the PC and phone industries follow that approach.
It is far easier and quicker to throw together products and get them out of the door as fast as possible. Product design and quality are not major considerations.
For years now we have all seen the PC industries compete for market share with manufacturers sacrificing margins to gain share. After a while another company makes the same box for less and the margins go down even further. Compaq & Dell have all fallen by the wayside. HP is next.
Same is happening with phones. Samsung will cut their margins to stay at the top and in the end they will lose money in that area.
Samsung typically does the smash and grab. Find a new industry, steal the tech and sell products in volume until they start losing money or have to settle lawsuits. The smartphone industry is maturing so Samsung have now fewer first time buyers to sell to.
Apple does the opposite. They develop a new area, build cutting edge high quality products so they can own the high end of the market and capture all the profit share. The work involved is not trivial and only Apple has the patience to see it through.
It’s simple. No one wins the “race to the bottom”.
In such a race we all lose, even those consumers that prize getting things as cheaply (in all connotations) as possible as the companies that build the cheapest products almost never are able to stay in business.
‘We’re not in the junk business.’
My favorite line. I wish Apple would make a commercial and use this. Kind-of like the old days with “I’m a PC, I’m a Mac guy’s”.
If they did a commercial showing how great their products are and then close by saying something like “We’re not in the junk business” it would be awesome.
That would totally get Samdungs and all the other look-a-likes goat. haha