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  (Source: Android Scissor)
Samsung beats Apple in U.S. sales, grows global sales

In Q3 2013, smartphone maker Samsung Electronics Comp., Ltd. (KSC:005930) showed some signs of weakness, but also posted strong financials defying claims of a major slump in its high-end smartphone sales.

I. Samsung Remains King of Smartphone Sales

For the quarter, Samsung -- which does not release sales numbers -- moved an estimated 85 to 89 million smartphones globally, according to analysts surveyed by The Wall Street Journal.  That's up roughly 20 percent versus Q2, when Samsung sold an estimated 71 million smartphones.  Samsung now looks much better positioned to potentially meeting its ambitious goal of selling 300 million smartphones globally (an average of 75 million per quarter) that it set for itself late last year.

After moving a reported 22 million units of its flagship Galaxy S4 in Q2, Samsung CEO JK Shin told reporters [translated] on Wednesday that sales had cracked the 40 million unit mark by the end of the quarter, indicating sales of about 18 millions GS4s in Q3.  Mr. Shin is quoted elsewhere as saying, "S4 sales are solid. It's just that some analysts had higher expectations and then they lowered them."

Samsung Galaxy S4 wide
The Galaxy S IV

Assuming nothing was lost in translation and GS4 unit shipments declined by 4 million units on a quarter-to-quarter basis, that's a decline of nearly 20 percent, which appears troubling.  But that number is also somewhat deceptive as Samsung also picked up a burst of Galaxy Note III sales following the device's Sept. 25 launch.

Samsung Galaxy Note 3

In its earnings report [PDF] Samsung writes, "high-end model shipments stayed at similar" while "total shipments [were] up QoQ [quarter to quarter, e.g. Q2 2013 v. Q3 2013] led by increased sales of mass-market models."

It's unclear how the shift from high-end to "mass market" (i.e. mid-to-budget range) smartphones will effect Samsung's bottom line, particularly given that sales are also growing, further complicating matters.  Nokia Oyj. (HEX:NOK1V) -- a veteran phonemaker whose devices division is now a Microsoft Corp. (MSFTsubsidiary has long asserted that it makes more money off feature phones than smartphones.  But other firms like Samsung and its archrival Apple, Inc. (AAPL) have seemingly suggested high-end models are where the greatest profits lie.

This discrepancy is likely because Samsung and Apple have traditionally charged more for their premium models.  For example an iPhone 5S with 16 GB of storage retailed for $649 USD overseas -- the same price as the 16 GB Galaxy "Nexus" S4 at launch.  By contrast Nokia's 2012 flagship device -- the Lumia 920 -- retailed for as little as $450 USD off contract at launch (although that's changing -- the industry-leading camera smartphone, the Nokia Lumia 1020 launched at $699 USD off contract).

Overall Samsung's smartphone unit cashed in with an operating profit of 6.28 trillion won ($6.3B USD) on sales of 35.2 trillion won ($33.1B USD).  This represents a 7 percent rise in profit and 3 percent rise in total sales revenue over Q2, indicating that the growth of low-end sales has more than offset the stall in high-end sales growth.

II. U.S. Outlook -- Apple v. Samsung, Still a Two-Horse Race

The smartphone battle in the U.S. market is still very much a two company race with Samsung and Apple trading blows in Q3.  Samsung ranked second, behind only Apple in a recent JD Power and Associates study examining customer satisfaction with their smartphones (Nokia notably beat all other Android OEMs, coming in third place). 

JD Power
Data collected by Counterpoint Research showed that in September Apple seized a commanding 39 percent lead in new device sales in the lucrative U.S. market, with Samsung in second place at 29 percent.  

Smartphone sales

But not so fast -- the same study shows Samsung winning by double digits in July and August as Apple fans waited for the iPhone 5C/5S.

Consumer Intelligence Research Partners (CIRP) reports that after falling behind Apple in U.S. sales in Q2, Samsung's strong July-August performance managed to trump Apple's powerful September showing, allowing it to regain the top spot in sales.  
Q3 2013
CIRP estimates that Samsung smartphones accounted for 38 percent of U.S. sales, while Apple devices took 34 percent of the market.  Together the two firms accounted for nearly 3 out of every 4 smartphones sold in the U.S.

III. Overseas Samsung Tramples Apple

But when looking at global sales, the picture Samsung's slow growth and maintenance of high-end sales looks remarkably better than the outlook for Apple.  While Apple has not released its sales numbers, Argus Insights has combined a number of analyst estimates along with its own data to compile a series of estimates of how many iPhones were sold globally in Q3 2013 (Apple's fiscal Q4 2013).  Its estimate pegs iPhone sales at 27 to 31 million units.

Argus Smartphone sales

In other words, Samsung outsold Apple roughly 3 to 1 globally in device units.

Argus says this is due to the fact that while the iPhone 5S was moderately well received, customers were very critical of the iPhone 5C which appeared to parrot Nokia's colorful body designs.  Argus writes:

This was the softest launch for Apple in years.  The 5C was a a global bust.  We recently started bringing in some data from Chinese consumers and was surprised to find that the buzz around the 5S was over 35 times higher than the 5C.  Surprisingly we did not see the iPhone 5 demand jump the way the iPhone 4S did after the iPhone 5 launch.  Overall buzz for Apple is falling everywhere but China.  This does not bode well for the next year and opens Apple to disruption by other competitors

The iPhone 5C was poorly received by customers
Indeed the buzz around the iPhone 5C seemed to be tepid at best. Apple has a tendency to surprise pessimistic analyses, but most of that trend was set in the Steve Jobs era -- under Tim Cook's leadership Apple has seen a disappointing stall in smartphone sales growth.

IV. Samsung's Other Products Showed Mixed Results

While all of Samsung's major units remained profitable, revenue from the display unit sagged 12 percent continue a trend from Q2.  Samsung currently owns a dominant market share in the industry's cutting edge technology OLED displays.  The display division's strong sales to smartphone manufacturers has somewhat insulated it from the TV market's decline, but the overall weakness is bad enough that it's dragging Samsung down with the rest of them.

Writes Bloomberg:

TV makers are reeling from sluggish demand, especially from China, while tougher competition is accelerating price reductions. Global shipments for liquid-crystal display TVs may fall 0.7 percent to 205.1 million units for this year, market researcher TrendForce said Aug. 22. The final figure may be as low as 202 million units, it said.

This revelation also adversely impacted Samsung's Consumer Electronics division, which sells both appliances and complete LCD TV sets.  That division dropped 18 percent.

On the other hand, booming sales of PC, tablet, and smartphone DRAM coupled with a lucrative contract to manufacture the Apple A7 aboard the iPhone 5S, saw Samsung's semiconductor unit to snag 2.06 trillion won ($1.94B USD) on sales of 9.74 trillion won ($9.17B USD) -- a 12 percent rise in revenue and 17 percent rise in profit.  DRAM and NAND flash storage (collectively referred to as "memory" by Samsung) accounted for 6.37 trillion won ($5.99B USD), or roughly two-thirds of Samsung's semiconductor revenue.

Samsung NAND flash
Samsung is now producing NAND on the 10-19 nm node. [Image Source: Samsung]

Aside from semiconductors, Samsung's strongest growth was in tablets -- which together with smartphones and enterprise products comprise Samsung's IT & Mobile Communications (IM) unit.  Samsung reports:

Shipments sharply increased due to enhanced product line-ups with Tab 3 expansion.

Samsung Galaxy Tab 3 10.1 in "Gold Brown"
The Galaxy Tab 3 7.0"/8.0"/10.1" debuted in June priced at $199/$299/$399 USD respectively.  Android in Q2 passed Apple in tablet market share on a platform basis, but Samsung -- the top Android tablet maker -- still trailed Apple in unit sales.  It is unclear how much that changed in Q3.

tablet market share
[Image Source: IDC via DazeInfo]

Apple introduced a refresh of its iPad Mini/iPad this week.  The 7.9"/9.7" iPad variants retail for $399/$499 USD, respectively.

A final note on the device side -- the Galaxy Gear, despite rampant advertising -- was a virtual nonfactor in Q3 earnings.  Samsung -- who reportedly is planning a Google Glass Explorer challenger -- has a lot of work to do to grow wearables into a high volume market.

V. Outlook -- Smartphones, Tablets, Intellectual Property

Samsung's smartphone growth continues to slow, but not as badly as Apple.  Microsoft's Nokia Devices, South Korea's  LG Electronics Inc. (KSC:066570) and a variety of Chinese OEMs -- including The Lenovo Group, Ltd. (HKG:0992), ZTE Corp. (SHE:000063), and Huawei Technologies Comp. (SHE:002502) -- are all slowly robbing Samsung of market share.

On the tablet front Samsung has the most growth potential.  With Apple's decision to price its 7-nch tablet $200 USD higher than Samsung's most recent model, it's essentially giving Samsung the majority of sales at this form factor.  Given its aggressive price, the only major concern for Samsung's tablet sales remains intellectual property concerns.

Apple has given Samsung the 7-inch market with its pricing decisions.
Recent patent decisions in the U.S. indicate a high likelihood that the majority of Samsung's product line is in violation of Apple's patent portfolio on multi-touch and other technologies.  Questionable nature of these patents aside, Samsung has hope yet of staving off Apple, though, in that it can release so-called workarounds that delay bans.

Apple patentSwipingApple Patent
Apple claims to "own" exclusive writes to "scroll", "swipe", and type with reliable accuracy on multi-touch displays.

Thus thanks to a combination of the inherently slow U.S. court system (two Apple v. Samsung lawsuits remain pending in federal court -- the GS4 one won't be tried until late 2014, at the earliest) and its workaround strategy, Samsung remains relatively safe in the U.S. -- for now.

VI. Outlook -- Semiconductor, R&D, and Report Card

Expect Q4 to be a key test as Samsung faces a refreshed Apple lineup and new models from HTC, Nokia, LG, and other players.  The Galaxy Round is Samsung first effort tipped to try to ward off those rising stars in Q4 2013.  It features a slightly rounded OLED screen, which gimmicks aside supposedly "hugs" the outline of your leg better when in your pocket.

But while smartphone and tablet market performance remains a key test in Q4, Samsung seems sure to post more record profits thanks to its semiconductor sales.

Basically Samsung is selling as much DRAM as it can manufacturer, but demand is still outpacing growth.  Thus in Q4 expect yet higher profits.  Of Samsung's 6 trillion won ($5.64B USD) in Q3 capital spending, roughly half ($2.5B USD) went to the semiconductor unit, with the chief goal of pumping up DRAM production.
Samsung DRAM
Samsung is cashing in, in the wake of a DRAM supply shortage [Source: regmedia]
From whence does this demand come?  The demand surge comes thanks to supply shortages at SK Hynix Inc. (KRX:000660), a top DRAM supplier.  A fire broke out last month at SK Hynix's DRAM line in Wuxi, China, a facility that accounts for 10 percent of the world's DRAM supply.  While production is expected to fully resume this month, the shutdown is expected to cut SK Hynix's output by 14 percent, and leave the overall market with a 7 percent deficit in components.  To Samsung, that news is the sweet sound of money.

So expect revenue, profit, and overall financials to rise to new records in Q4 -- even if Samsung was basically handed this golden opportunity via SK Hynix's misfortune.

Samsung's earnings report card for Q3 2013 is:
  • Revenue                                     B+
  • Profit                                          A-
  • Budget Phones:                           A-
  • Mid-to-Premium Smartphones:     B
  • Consumer Electronics                  C
  • Semiconduct/Display                   A
In other words, the world's largest electronics company is still the world's largest electronics company, but it didn't escape the quarter without showing signs of weakness.

Sources: Samsung [PDF], iNews [Google Translated], WSJ, Bloomberg

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RE: Faster than expected
By Dr. Kenneth Noisewater on 10/26/2013 12:49:54 PM , Rating: 2
Because BMW covets Toyota's marketshare so deeply ;)

RE: Faster than expected
By retrospooty on 10/26/2013 2:07:41 PM , Rating: 4
Actually they do. You see all those commercials they air for BMW? Those are designed specifically to sell more cars. I know. Amazing revelation... It's a bad comparison anyhow.

BMW vs Toyota: BMW are far better cars and worth the price premium if you can afford it.

iPhone vs. other smartphones: iPhone's are not better, not more capable and are missing TONS of features and are NOT worth the price premium.

RE: Faster than expected
By Monkey's Uncle on 10/26/2013 3:32:34 PM , Rating: 2
... which is why people that know better won't touch iphones ;)

RE: Faster than expected
By testbug00 on 10/26/2013 5:18:58 PM , Rating: 2
Let me see, the iPhone (now) has a flash system that 99% of competing phones cannot hope to match (there are two that have better flashes, and under 10 that are *eh* and none of those are huge sellers). It has fingerprint reader, which to most people means "it is ultra good!11!1!!" and such. It also has Applecare, Apple is very good with warrantly/consumer satisfaction. THAT DOES MATTER!

Apple has iOS, which, in my experience (iOS 4/5 jailbroken, iOS 6/7 not + WP8 + Android 2.3 (phone) + Android 4.1 (Tablet) + Android 4.2 (phone)) is far nicer than Android. Oh, also Apple feels smooth, I have an iPhone 4 that feels smoother than my friends GNexus...

If only someone could move to Sailfish OS... *sighs* until than I will be sitting with WP8 for the cameras (Nokia's built quality doesn't hurt either)

RE: Faster than expected
By Monkey's Uncle on 10/26/2013 6:15:41 PM , Rating: 4
Let me see, the iPhone (now) has a flash system that 99% of competing phones cannot hope to match (there are two that have better flashes, and under 10 that are *eh* and none of those are huge sellers).

Dual color flash? Seriously? I have a dslr with an add-on flash. Guess what. It is not dual color. Why? There is something in photography called auto white balance. What a concept! And guess what. My Sammy GS4 has that too. Doesn't need a gimmicky flash. If you want a good flash on a phone, only a xenon flash will do. LED flashes are barely worth the silicon they are made with.
It has fingerprint reader, which to most people means "it is ultra good!11!1!!" and such.

Fingerprint reader? Ultra good? Bro, what you are smoking? I think that dead horse has been beaten over and over. The consensus has been that it is yet another gimmick, that has already been done on android phones, that is no better than Android's simple face or pattern unlocks. Again - a waste of precious real estate on a teensy 4" screen phone.

Applecare? Bwahahahaha!!
Every iPhone comes with one year of hardware repair coverage through its limited warranty and up to 90 days of complimentary support. AppleCare+ for iPhone extends your coverage to two years from the original purchase date of your iPhone and adds up to two incidents of accidental damage coverage, each subject to a $79 service fee plus applicable tax.

All phone makers provide a full 1 year warranty. The rest is nothing more than an extended warranty. You can get that from any cell phone provider or even your credit card company.

You realize this is nothing more than an extended warranty, right?

Yes iOS is smooth. It is designed to be run on hardware tightly controlled by Apple and only that hardware. Apple doesn't provide iOS to not Apple hardware vendors and for them, that is just fine. That also means it is completely 100% "what you see is all you get" and nothing more. iOS is iOS. You don't like how it does something, tough - go take it up with Apple. Just don't hold your breath to do anything about it.

If you don't like the way Android does something, fine - yhou can change it to work exactly the way YOU want it to work. Don't like the useless apps provided by the cell phone provider? Covered - you can load in a 'lean' rom that is every bit a smooth to use as your iOS. Don't like the stock app launcher & main UI? Not a problem - there are some really nice alternates. Want to overclock your phone? Again - not a problem. I challenge you to try any of that with an iPhone - even a jailbroken one.

RE: Faster than expected
By testbug00 on 10/27/2013 3:33:58 AM , Rating: 2
1. The flash system is still BETTER than most of the other phones out there, Software can always be tweaked, hardware you are stuck with, with things that are comparable across platform lines, take the better one. FWIW, I personally have a 1020 for a reason :)

2. The whole fingerprint reader thing was mocking people...

3. Apple is far better about warranties than any other company I have had to deal with (Acer, Dell, HP, Lenovo, Microsoft, HTC) I haven't had experience with most of them involving phones, but it has been miles above anything I have experienced. It is not very hard to get a lot out of people at the Apple Store for free/ultra-low cost, I have plenty of experience with that.

4. I have played with Android, I dislike it. I am a minority case that does TONS of reading on my phone, being smooth is needed for all the reading I need. That being said, there is a point where it becomes "Seriously?" as in 1Ghz A9 core in iPhone 4 (.5GB RAM) (iOS 5 jailbroken) feels faster than a 1.2Ghz dual core A9 (1Gb RAM) (4.2 stock) is the point where I get fed up.

5. I don't need a fast phone, I need one that feels smooth, can handle all tabs without reloading, very nice camera, play/store vidoes, and do offline mapping. MY NEXT DESIRABLE THING IS BATTERY LIFE.

RE: Faster than expected
By Reclaimer77 on 10/27/2013 10:40:15 AM , Rating: 2
You're comparing iOS5 to Android 4.2??? And a jailbroken phone at that, not stock for stock.

Why don't you put iOS 7 on that iPhone 4 and tell me how smooth it is then? Oh that's right, it's a known fact that older iPhones are ANYTHING but smooth running iOS 7.

Enjoy your horribly laggy barely usable iPhone4 with iOS 7!

I am a minority case that does TONS of reading on my phone

Yet you enjoy squinting at that tiny ass 4" screen all day?

RE: Faster than expected
By Cheesew1z69 on 10/27/2013 10:58:05 AM , Rating: 1
Isn't the 4 still 3.5in?

RE: Faster than expected
By Reclaimer77 on 10/27/2013 11:01:40 AM , Rating: 2
lol ooops! Good point.

Yeah GREAT screen for doing lots of reading, right?

RE: Faster than expected
By testbug00 on 10/27/2013 11:49:32 AM , Rating: 2
Gee, thanks for reading my post (like where I pointed out I have a 1020) and if you can show me an Android OS that is smooth, please do. I have yet to find one. I don't go to iOS7 because it is stupid stuff (and upgrading would probably take longer than I use my iPhone every month)

I jailbroke because Apple didn't have an OS that was even usable without having to run to settings every 10 seconds before iOS7.

RE: Faster than expected
By retrospooty on 10/27/2013 1:14:39 PM , Rating: 1
Any Android 4.1 or newer where you kill the OEM bloatware is plenty fast. It does take a few minutes of work but this is a tech site and if you are here you should be able to do it, and if you can't, you don't belong here. The notion that Android is slow is ridiculous and wrong and a newbie comment. Its a far more advanced OS that does far more things and supports many many more configurations and it takes a little bit of know how to make it shine.

RE: Faster than expected
By testbug00 on 10/28/2013 3:55:35 AM , Rating: 2
I did not say android was slow, i said it didn't feel smooth.

Slow and smooth are two different things *Yawns*

RE: Faster than expected
By Reclaimer77 on 10/28/2013 8:59:29 AM , Rating: 2
In my experience Android is smooth. So its difficult to reconsile your observations with mine. Granted I've never owned a low end phone.

RE: Faster than expected
By retrospooty on 10/28/2013 10:57:17 AM , Rating: 2
I have no idea what that means. There have been complaints of slowness and stuttering and that is what I was speaking to. That is true of really old versions and OEM stock ROM's, but it's completely false of the OS itself on any recent phone, even low end. Any dual core s4 chip or higher can run Android sweet and smooth and stutter free.

RE: Faster than expected
By Rukkian on 10/28/2013 12:30:25 PM , Rating: 2
You want to see a smooth Android phone, try out the G2. I have actually had die hard apples fans tell me how smooth and fast it was.

While there are some phones with get bogged down with useless gimmicks (Touchwiz), some are very nice. The point is, you have choice.

RE: Faster than expected
By Reclaimer77 on 10/28/2013 12:43:05 PM , Rating: 2
Then there's the MotoX. I haven't spent time on one personally, but all the reviewers are saying its the slickest Android experience out there.

My friends Note is blazing fast and butter smooth, despite "Sambloat", so I don't know.

RE: Faster than expected
By retrospooty on 10/28/2013 1:53:46 PM , Rating: 2
"My friends Note is blazing fast and butter smooth, despite "Sambloat", so I don't know."

I have noticed that too. It's not all Samsung phones, and not even all of any particular models. There are definitely some permutations and situations where it happens. MAybe some combo of bloat and certain apps loaded or running in the background... One thing I do know for sure, if you take 10-20 mins to root and and kill off that bloat Samsung phones really shine. Even older dual core models fly.

RE: Faster than expected
By retrospooty on 10/28/2013 1:50:19 PM , Rating: 2
Exactly. I can confirm that. My boss and I both have a G2, our other co-worker has a Note3. The G2's (even stock with bloat) are fast as hell. The Note 3 has some issues stuttering when launching and switching apps, as well as stuttering when scrolling (stock, pre-bloatfix). Not much, but a bit, enough to notice. After killing some of the OEM and VZW apps , the Note3 screams! In comparison, an old US-GS3 with dual core snapdragon 4 CPU with custom ROM's that dont have Sambloat, even they are fast as hell with zero lag/stutter/slowness anywhere. The MotoX is a good example of that too as Reclaimer says below. It's dual core but runs extremely fast. It's not even a CPU issue, its just that some OEM's bloat it out and do a piss poor job it it.

RE: Faster than expected
By Reclaimer77 on 10/28/2013 3:25:40 PM , Rating: 2
General Settings > Developer Options

Windows Animation Scale = off
Transition Animation Scale = off
Animator Duration Scale = off

I do this with every Android device I get my hands on. Makes a huge difference in UI "feel". Maybe some people care about animations, but I don't.

I noticed on my friends Note 3, the duration scale was set higher than I've seen on other phones. Which probably gives the false impression the UI is "lagging".

RE: Faster than expected
By retrospooty on 10/28/2013 3:37:37 PM , Rating: 2
I leave all those on and love the eye candy. Android, even Samsungs fly with it all enabled, just kill the bloat.

RE: Faster than expected
By retrospooty on 10/26/2013 6:45:01 PM , Rating: 1
Its not the few things that the iPhone has that make it a poor excuse for a high end phone, its the huge list of things it is missing. It's fast, and solidly built, but other than that, its a giant list of "no's".

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