According to a forecast report from statista.com, worldwide smartphone shipments are projected to reach its peak in 2018, which is obviously bad news for smartphone manufacturers. Currently, Samsung (SSNLF, Financial) and Apple (AAPL, Financial) are the two foremost contenders of the smartphone industry.
Apple rewarded shareholders with decent returns in 2016 and the stock was up approximately 10%. On top of that, the stock is off to a marvelous start heading into 2017 as it is already up more than 18% year to date. It is yet to be seen if Apple will be able to survive at this level however.
Apple recently reported strong first-quarter results. It reported EPS of $3.36, exceeding the analyst estimates by 14 cents. Revenue came in at $78.4 billion, again exceeding the estimates by $1.02 billion.
In the first three quarters of 2016, Samsung surpassed Apple by grasping more than 20% of the smartphone market share. In the final quarter of 2016 however, Apple’s market share came in at 18.3% compared to Samsung’s 18.1%.
The only reason for Apple’s victory was the failure of Samsung’s Galaxy Note 7, which was intended to compete directly against the iPhone 7 and iPhone 7 Plus. Despite the failure of the Note 7, Apple was not able to snatch a large portion of market share from Samsung due to its Galaxy S7 models, which were launched approximately six months before the failed device.
Moreover, Apple continues to lose its grip in China. According to a report from IDC, the Chinese smartphone market surged in 2016, but Apple’s shipment volume reached 44.9 million units, down from 58.4 million in 2015. That figure represents -23.2% year-over-year growth.
The primary reason behind Apple’s decline was the introduction of cheaper devices from smaller competitors. Moreover, it does not produce low-end devices like Samsung.
Apart from this, Apple did not change much about its newest device. There were only few new features introduced in the iPhone 7 compared to the iPhone 6S.
This is not the case with Samsung. It continues to introduce new innovative features in its latest devices. Moving ahead, Samsung is on its way to launch the Galaxy S8 very soon. Like Galaxy S7 models, it is highly likely the new model will also secure a top position in the smartphone market.
Following the Note 7 disaster, Samsung has learned from its mistakes and claims it will never repeat them. The Galaxy S8 is anticipated to comprise several solid features that could help Samsung earn back its lost market share.
Summing up
Apple performed really well in 2016 and is off to a great start this year. But, the main reason behind Apple’s iPhone 7 success was the failure of Samsung’s Note 7. However, Samsung is about to launch its new flagship Galaxy S8 very soon, which could help it recapture significant market share from Apple.
Currently, Apple is dependent on iPhone sales, but Samsung has a much more diversified portfolio of electronic products that will help it survive even if smartphone sales abruptly decline in the near future. As a result, Samsung appears to be a better investment option compared to Apple.
Disclosure: No position in the stocks mentioned in this article.
Start a free 7-day trial of Premium Membership to GuruFocus.
