Samsung, Apple in search of growth beyond saturated markets

Monday 28 January 2013 | 13:55 CET | Background

Samsung and Apple together accounted for almost half of the global market in smartphones last year. The total market reached 700 million phones shipped, up 43 percent from 2011, according to figures from Strategy Analytics. Samsung took around 30 percent of the smartphone market, and Apple accounted for 19.4 percent.

These scores are the result of extensive and expensive marketing campaigns, broad distribution channels and attractive portfolios. However, the results just presented by Samsung and Apple show growth is slowing, and it’s becoming more and more difficult to sustain. 

Record sales, but lower share prices

Samsung reported record sales and profits for the last three months of 2012. The same as in previous quarters, this was due to its mobile division, which has produced such devices as the Galaxy SIII and Galaxy Note II selling in the millions. Strategy Analytics estimates that the Korean company sold a total 213 million smartphones last year. 

Apple sold 136 million iPhones in 2012, making it the second-largest smartphone manufacturer in the world. In its fiscal first quarter to December, Apple recorded revenues of USD 54.4 billion, up from USD 46.3 billion a year earlier. The net profit reached USD 13.1 billion. Apple shipped a record 47.8 million iPhones in the quarter, driven by the launch of the iPhone 5. 

Both companies expect a slowdown in Q1. This is not so surprising given the usual seasonal slowdown after the year-end holidays. Samsung expects demand for high-end models to slow in mature markets, as well as increased price pressure. A silver lining is the growing demand in emerging markets for low-cost smartphones. 

Apple expects revenues of USD 41-43 billion and a gross margin of 37.5-38.5 percent in the current quarter and said its confident in its pipeline to support the forecast. CFO Peter Oppenheimer also underlined the growing use of Apple products by businesses. Similar to Samsung, Apple is targeting growth in Asia, and especially China, where it grew sales 67 percent year-on-year. 

Both Samsung and Apple received a negative market reaction to their results. Samsung’s shares fell amid fears the stronger won will put pressure on operating profits and the market is becoming saturated. Apple’s share price was down 12 percent after the results came in below market expectations. Investors are concerned Apple will not be able to maintain the strong growth rates of the past. In an effort to avoid such negative reactions, Apple will start issuing less conservative guidance for its results. 

Nokia’s results did not receive such a warm reaction either despite showing its first profit improvement in quarters. The Finnish company is still a long way from a full recovery and needs to keep fighting for its existence. While sales of Lumia smartphones are growing and the Asha series is doing reasonably well in emerging markets, volumes are still lagging market growth. 

Samsung and Apple finished the year the same way they started, with record sales and profits thanks to the growing demand for their mobile devices. However, it’s clear they will need to do everything they can to stay ahead of the competition, as players such as BlackBerry, Microsoft, Google and now Amazon step up their efforts. 

Focus on China 

According to IDC, around 380 million mobile phones will be sold in China this year, of which 300 million will be smartphones. This is equal to nearly half the expected global smartphone market in 2012.  

It’s interesting to see how players are increasingly looking outside the traditional markets where their lots were determined for so long. More and more often the handset makers are underlining the possibilities in emerging markets, and China, with its 1 billion mobile users, is considered the top prize. 

Apple has less of a say in China than in other countries where it nearly single-handedly created the smartphone market. Relations with Chinese carriers are difficult, there are few links with resellers, Android already has around 90 percent of the market, and it’s still a question whether Apple will sink to the low price points common throughout the country. Nevertheless, Apple’s revenues in China in the last quarter grew 67 percent. 

Nokia was once an important player there, but after abandoning Symbian, the company is losing share quickly. Nokia’s Devices & Services division saw its sales in China fall by almost 80 percent year-on-year in Q4 2012, while the number of units sold was down by almost 70 percent. Nokia said in its presentation of the results that it was satisfied with the performance of its low-cost Asha devices, aimed at emerging markets. 

Samsung, market leader in China, must face up to growing competition from local manufacturers such as ZTE, Huawei, CoolPad, Lenovo and many more smaller makers flooding the market with very cheap smartphones. The situation is difficult for Samsung as it can’t match the local dump prices with its own low-end smartphones, The Korea Times reported recently. 

Emerging markets will become increasingly interesting for players making their profits from especially high-end devices in mature markets. It starts with building volumes through low-end devices, and then encouraging customers to migrate to more pricey models. Samsung and especially Apple will find it no easy task in these kind of markets.

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