A sales assistant uses her mobile phone next to the company logos of Apple and Samsung at a store in China. Photo: Reuters
Jan. 29, 2015 6:25 a.m. ET
SEOUL—The fortunes of the world’s two biggest smartphone makers crossed paths again this week, as contrasting earnings reports from Apple Inc. and SamsungElectronics Co. put the two technology giants back in a dead heat for leadership of the global smartphone market.
Earnings reports from Apple and Samsung, released within a day of one another, highlighted Apple’s resurgence thanks to the popularity of its bigger-screen iPhones, while underscoring the stiff competition that Samsung is facing, particularly from low-cost rivals in China.
Data from Counterpoint Technology Market Research showed Apple overtaking Samsung in smartphone shipments for the last three months of 2014 globally. Apple said that it sold 74.5 million iPhones in the quarter, while Samsung said it sold between 71 million and 76 million smartphones.
Strategy Analytics said in a report Thursday that Samsung’s smartphone sales in the quarter amounted to 74.5 million—putting it in a tie with Apple for first place.
Samsung, which has seen its market share ravaged by low-cost Chinese handset makers, reported a 64% drop in operating profit from mobile phones on Thursday. Mobile phones, which accounted for 75% of Samsung’s overall operating profit in the first quarter of 2014, now chip in just 37% of total earnings, as the South Korean company’s smartphone sales sag and its semiconductor business picks up speed.
Samsung first overtook Apple as the leading smartphone vendor in 2011 as the South Korean firm rode the success of the first smartphone in its popular Galaxy series.
The Galaxy smartphones became the central focus of a bitter legal battle between Samsung and Apple over patents and innovation that has played out over the last four years. The two companies agreed last year to settle the legal case outside the U.S.
Since last year, Samsung’s leadership has been under assault from companies like upstarts Xiaomi Corp. in China and Micromax in India. Its Galaxy S5 smartphone, which it started selling last spring, was something of a flop with consumers, selling about 40% fewer than expected, according to people familiar with the matter.
Samsung is hoping to reassert its leadership with its successor device, which is expected to be called the Galaxy S6, and is set to be announced on the sidelines of an industry trade show scheduled for the beginning of March in Barcelona.
The convergence of Apple and Samsung’s fortunes comes as more of the world’s population adopts smartphones, leaving less room for growth.
As a result, Samsung has turned its focus to selling low-end smartphones, targeted at consumers who have never owned a handset capable of accessing the Internet, which has led to a decline in its profit margins.
Earlier this month, Samsung released a new smartphone in India that sells for just $92. The phone, called the Samsung Z1, is powered by its homegrown Tizen operating system, an alternative to Google Inc. ’s Android.
Samsung’s mobile operating profit margin during the last three months of the year was just 7.5%, a touch higher than the third quarter’s margin of 7.1% but well below the 19.8% margin that Samsung’s mobile unit enjoyed as recently as the first quarter of 2014.
In contrast, Apple, which has long championed a strategy of targeting premium consumers with its high-end iPhones, saw its gross margin rise to 39.9% in its fiscal first quarter ended December from 37.9% a year earlier. That was largely because of the success of its iPhone 6 and iPhone 6 Plus, which borrowed from Samsung’s large-screen smartphone strategy.
While the two companies are now neck and neck in smartphone sales, in many ways Samsung and Apple are competing for different consumers, says Mr. Kang of Counterpoint.
“Samsung should not even be trying to compete with Apple — it’s a distraction,” Mr. Kang argues.
In the Android market that Samsung still leads in globally, Mr. Kang argues: “The majority of those users don’t want to spend that much money anymore.”
‘Samsung should not even be trying to compete with Apple — it’s a distraction’
—Tom Kang, Counterpoint analyst
While Samsung’s earnings report showed the company continuing to feel the pressure from Apple and other handset makers, the company was also quick to note that the magnitude of its earnings slide is moderating, suggesting that Samsung is finding its footing after three consecutive quarters of sharp year-over-year net profit declines.
Samsung said its fourth-quarter profit fell 27% to 5.35 trillion won ($4.9 billion), better than the 49% year-over-year slump in the third quarter.
Samsung is also finding a stronger footing in its semiconductor business, which analysts say is likely to boost the company’s bottom line this year as the mobile division continues to regroup.
A large number of Samsung’s next flagship smartphones could come equipped with an internally designed mobile processor, said a person familiar with the matter, unlike previous models that relied heavily on processors from Qualcomm Inc.
That change would help Samsung lift its mobile profit—albeit modestly—and boost the chip unit that makes mobile processors, analysts say.
Fourth-quarter operating profit fell 36% to 5.3 trillion won on an 11% decline in revenue of 52.7 trillion won, Samsung said.
Samsung executives also sounded an upbeat note about its non-memory chip business, which analysts say is likely to have weighed down the company’s overall semiconductor performance last year.
Samsung Electronics’ logo is displayed at the company’s showroom in Seoul, South Korea. Photo: Bloomberg News