Print 61 comment(s) - last by Argon18.. on Oct 31 at 12:22 PM

  (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

Comments     Threshold

This article is over a month old, voting and posting comments is disabled

RE: Faster than expected
By Tony Swash on 10/26/2013 1:25:45 PM , Rating: -1
I just can't see how that doesn't put Apple's smartphone business in the category of 'marketing supported house of cards.'

Apple are doomed. Apple have always been doomed. For nearly forty years Apple has been constantly doomed. Apple will be doomed for many years to come. Apple’s business has always been seen by some as on the point of collapse or marginalisation. When Apple was the Apple II company, its end was imminent because the Apple II had an easily foreseen demise. When Apple was a Mac company its end was imminent because the Mac was predictably going to decline. Repeat for iPod, iPhone and iPad. It’s a wonder that the company is worth anything at all.

Apple recently sold 9 million phones in one weekend.

RE: Faster than expected
By retrospooty on 10/26/2013 2:04:11 PM , Rating: 3
I have to agree with you. Apple's success is largely marketing, but house of cards? No, its solid and stable. "marketing supported house of steel" would fit better.

Apple are doomed? No, Apple is boring as hell and their products are behind the competition, but they are not in any trouble at all.

RE: Faster than expected
By Monkey's Uncle on 10/26/2013 6:27:22 PM , Rating: 4
iPhones are for those that are less technically inclined that want a basic smartphone that simply works with no fussing around and don't really care about flexibility. You know the type - the ones that always get their computers loaded with malware while surfing thru porn, scratch their heads as to why their system is slowing down & go paying the nearest computer geek to fix it for them.

Apple is very, very good at finding and marketing to these folks.

My view on that? Great! Apple can have them! I am one of those that demand an endlessly flexible smartphone rather than a *little* black box.

RE: Faster than expected
By Tony Swash on 10/26/13, Rating: -1
RE: Faster than expected
By Monkey's Uncle on 10/26/2013 7:44:03 PM , Rating: 2
Really Tony? What high end pro apps are those?

As for "enterprise, medical, creative and educational sectors"... Again, you got something that documents this? Well, let's call this a given in the absence of evidence otherwise.

These sectors pretty much underscore the demographic that would be much more comfortable with less flexible, proprietary black box products. Apple's favorite marks - ones that don't look too closely at their technology or need much more than you package up for them. They are far less demanding of their technology than those in the various tech sectors -- the ones Apple has a tough time marketing their products to. Techies are inquisitive and like to push the envelope on their devices just because they can. Apple's devices does not cater to this crowd but Android's phone implementers welcome it.

Apple users train themselves to using their products the way Apple wants to do things and are really not interested in trying to change it. Android users on the other hand are the opposite - they would much rather make the device work the way they want it to work rather than conform.

While both kinds of people don't really understand the motivation of the folks on the other side of the tracks, there's plenty of room in the world for both and there are companies out there that are perfectly happy to cater those folks on their side of that fence.

RE: Faster than expected
By retrospooty on 10/26/13, Rating: -1
RE: Faster than expected
By Tony Swash on 10/27/13, Rating: -1
RE: Faster than expected
By retrospooty on 10/27/2013 9:19:27 AM , Rating: 2
You should be made to think with some objectivity, instead of your current company based thought process. There is a whole world going on outside of Apple.

RE: Faster than expected
By Cheesew1z69 on 10/27/2013 10:08:08 AM , Rating: 1
You should be made to think with some objectivity
Oh you, you are a funny one! I honestly think he is being paid by them to do this.

RE: Faster than expected
By retrospooty on 10/27/2013 10:19:17 AM , Rating: 2
Ya, but, Apple Apple Apple Apple.

RE: Faster than expected
By Kiffberet on 10/28/2013 8:50:44 AM , Rating: 2
You're partly correct.

Half the world's population are women. And in general, women couldn't give a flying f@ck about 'flexibility' (whatever that means on a smartphone)or technology.

Cater for them, and you've won the battle already.

As for men, try and capture a few percent of them and you're made.

RE: Faster than expected
By Any14Tee on 10/28/2013 8:00:26 PM , Rating: 3
Most women I know (ok a few, yes I'm f**k ugly) use the iphone, you know the type, I just need to whip out from my bussom my little shiny Applevibrator.

Oh chavs with money love iphone because they're too f**k stupid to possess a brain.
My gay friends I know from work have iphones, kept in their little dainty shiny bling cases, 'there so cutesy darling. But real men, I mean, grrrh real men, beer drinking buddies only use Andriods - iphones are for pu**ies.

I have an andriod because I am sensitive and require some understanding. I realise I have contributed absolutely nothing to this forum but thanks for listening.

RE: Faster than expected
By retrospooty on 10/28/2013 8:06:50 PM , Rating: 2
"Most women I know (ok a few, yes I'm f**k ugly) use the iphone, you know the type, I just need to whip out from my bussom my little shiny Applevibrator. Oh chavs with money love iphone because they're too f**k stupid to possess a brain. My gay friends I know from work have iphones, kept in their little dainty shiny bling cases, 'there so cutesy darling. But real men, I mean, grrrh real men, beer drinking buddies only use Andriods - iphones are for pu**ies."

<------------> distancing himself from this remark.

RE: Faster than expected
By Any14Tee on 10/28/2013 8:28:51 PM , Rating: 2

Uk time buddy must get some sleep. Thanks for keeping me entertained.

RE: Faster than expected
By retrospooty on 10/29/2013 12:16:13 PM , Rating: 2
hehehe... Right back at'cha.

"A politician stumbles over himself... Then they pick it out. They edit it. He runs the clip, and then he makes a funny face, and the whole audience has a Pavlovian response." -- Joe Scarborough on John Stewart over Jim Cramer

Copyright 2016 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki