Samsung (NASDAQOTH: SSNLF) is one of the most hotly-admired companies in the world right now. The business has been able to grow substantially as a result of launching its Samsung Galaxy S series of phones, which use the Android operating system.
The war is on
Source: Statista
Samsung increased its spending by 58% in the United States in 2012 to catch up to Apple(NASDAQ: AAPL). Samsung's 2012 global advertising budget was around $4.3 billion. Apple, on the other hand, had a much smaller advertising budget of $1 billion. The basic concern is that by Samsung increasing its advertising, with its recent Jay Z ad campaign along with a host of others, Apple’s competitive position within the United States could be compromised.
Source: ComScore
Samsung currently has 22% of the total market share in the United States. It has only grown by 0.6% after rapidly increasing advertising spending by 58% in the previous fiscal year. Samsung is likely to increase the amount of money spent on advertising even further going into fiscal year 2013. The company isn’t willing to take any risks, and cannot afford to lose its foothold in the United States smart phone market.
Source: PiperJaffray
Currently 21% of teenagers are planning to make their next smart phone purchase an Android. Samsung would need to go blow up its advertising to make sure that more than 21% of teens buy an android.
Apple shareholders may be feeling threatened. While Apple has a lot of Untied States and European market share, it is behind the competition in other markets, and cannot afford to lose any bit of market share to Samsung. Apple closed below $400 per share and at the time of writing it is trading at $391 per share.
Apple shareholders may be feeling threatened. While Apple has a lot of Untied States and European market share, it is behind the competition in other markets, and cannot afford to lose any bit of market share to Samsung. Apple closed below $400 per share and at the time of writing it is trading at $391 per share.
Source: Statista
Samsung only has 19% of the tablet market, with Apple iPad’s and Mini’s combined holding onto 67% of the United States tablet market.
For now, I think the scare in Apple is over-hyped (though I will explain the technical side of the argument in another article.) IDC projects that the smart phone market will grow at a 16% compound annual growth rate until 2017. Taiwan Semiconductor Manufacturing projects 23% compound annual growth rate in tablet devices until 2017.
Based on the growth rates projected for both smart phone and tablet devices, it is perhaps more intelligent to stick with Apple’s stock rather than dumping it because of short-term market volatility. Yes, sometimes being a buy and hold can stink. For now, though, investors should remain patient and stay the course with Apple.
Microsoft & Nokia the unlikely duo
Investors should consider Microsoft (NASDAQ: MSFT). Microsoft is likely to gain market share in the United States because 5% of survey respondents amongst the younger demographic were thinking of making the switch over to Windows Phone 8. This is aided by the fact that the Windows metro interface is becoming increasingly familiar to the average user. Nokia (NYSE:NOK) is coming to the market with some new handset devices which could be industry changing. Nokia has 18% global phone market share (including both regular and smart phones); its greatest weakness has been in the high-end. But with Microsoft’s buttery-smooth Windows Phone 8 mobile operating system, maybe the awful days of Symbian can come to a close. Nokia’s greatest advantage of using the Windows Phone 8 operating system is the compatibility of the device with other devices in the Windows ecosystem like the Microsoft Surface Pro and a standard Dell desktop computer.
By Microsoft partnering with Nokia, the company has already been able to secure 18% of the global market. It is just a matter of whether or not Nokia and Microsoft can keep that market share. If it can, then Nokia can stem its decline in earnings,and Microsoft will be earning a lot of revenue from its mobile licenses.
Never forget Google
Google (NASDAQ: GOOG) has been able to dominate the globe by partnering with globally capable distributors like Samsung, LG, and HTC. While I don’t think the individual handset makers are a very good investment opportunity, I think that Google itself will generate a significant amount of earnings growth going forward. IMS Research projects that the demand for internet capable devices will triple by 2020. I am skeptical of Google keeping its nearly 70% market share going forward, but I believe that the number of devices using Android will grow at a faster rate than Google’s loss of market share.
Because it’s just an intermediary, the company’s operating margins will not be affected by this as much as the handset makers like Samsung and LG. This is because Google generates transaction fees through its Google Play marketplace and also earns revenue from advertising, so anything above break-even is pure profit. The negative of losing market share is a loss of earnings growth momentum, but it will not result in a loss of earnings in and of itself.
I believe that Google will lose out a bit to some of its rivals like Microsoft and Apple. Microsoft is worrisome because of its success in consumer electronics (the Xbox 360 reached a 47% market share in the United States, for example), and Apple’s lack of market presence globally has to do with limitations in how the company can sell its products in markets that are saturated by lower-margin phones. Apple plans to take away the competitive advantages of Samsung, Sony, and HTC in the emerging markets by marketing lower-end devices.
I believe that Google will lose out a bit to some of its rivals like Microsoft and Apple. Microsoft is worrisome because of its success in consumer electronics (the Xbox 360 reached a 47% market share in the United States, for example), and Apple’s lack of market presence globally has to do with limitations in how the company can sell its products in markets that are saturated by lower-margin phones. Apple plans to take away the competitive advantages of Samsung, Sony, and HTC in the emerging markets by marketing lower-end devices.
Conclusion
Investors should stick with Apple, Microsoft, and Google. I also believe that Nokia could have some potential here if its partnership with Microsoft is able to stem the losses in its global shipments and at least stabilize its market share. Avoid investing in Samsung, as its rapid increases in advertising are just a scare tactic.
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