Chipping Away at the Smartphone Leaders

For several years, these two companies have dominated the mobile phone-making business, successively one-upping each other with ever sleeker, more technologically sophisticated iPhones and Galaxy handsets that left would-be rivals grasping. But now the competition is stirring, and consumers are giving another look to brands they once ignored.

Those challenges were evident in the latest earnings report from Samsung on Friday, when the company said it expected competition in the smartphone business to stiffen in the third quarter, with new models pending from LG and other rivals.

Already, the combined share of the worldwide smartphone market controlled by Apple and Samsung Electronics slipped to 43 percent in the second quarter from 49 percent a year earlier, IDC, a research firm, reported Friday.

Some of the companies that are chipping away at the leaders are familiar names attempting comebacks, like Sony, Nokia and HTC. Others are relative newcomers like LG, Lenovo, ZTE and Huawei.

“The story is no longer Apple versus Samsung,” said Bryan Wang, an analyst at Forrester Research. “Going forward, they will both face similar challenges.”

Analysts say buyers are more willing to look at alternatives to Apple or Samsung because the differences among smartphones are becoming less pronounced.

The proportion of phones running Google’s Android operating system keeps growing and technical specifications are converging. Like Samsung’s Galaxy S4, for example, a number of other phones, including Sony’s Xperia Z, also include high-definition, 5-inch screens.

That makes price, where LG and the Chinese smartphone makers have an edge, an increasingly important selling point.

Samsung remains a powerhouse, reporting big gains Friday in sales and earnings for its latest quarter. Net income rose 50 percent, to 7.77 trillion won, or $6.9 billion, from 5.19 trillion won a year earlier. Revenue rose to 57.46 trillion won from 47.6 trillion won. On Tuesday, Apple likewise posted quarterly net income of $6.9 billion, while revenue was roughly flat at $35.3 billion.

Strategy Analytics, a research firm, said Friday that Samsung had passed Apple for the first time to become the world’s most profitable maker of mobile handsets. Samsung, which does not break out results for its handset-making business, generated $5.2 billion in quarterly operating profit from the unit, Strategy Analytics estimated, compared with $4.6 billion for Apple.

Samsung had previously pulled ahead of Apple in market share, and its gains continued in the second quarter, when it controlled 30.4 percent of global smartphone shipments, compared with 13.1 percent for Apple, according to IDC.

But Samsung also showed signs of having to work harder to achieve those gains. Big-ticket promotional events like an introductory gala for its flagship model, the Galaxy S4, at Radio City Music Hall have driven up marketing costs. And while the S4 has been selling at a brisk pace, it has fallen short of some analysts’ expectations. “The strong growth streak for the smartphone market is expected to continue in the third quarter, albeit at a slower pace,” Samsung said in a statement.

Like Samsung, Apple sold more phones in its latest quarter — 31.2 million, up from 26 million a year earlier. But investors had grown accustomed to bigger gains, and the share prices of both companies have taken a beating this year.

“In a way, Apple and Samsung have become victims of their own success,” said Pete Cunningham, an analyst at the research firm Canalys. “When these companies report many billions of profits every quarter, it’s hard to say they are doing anything wrong.”

Together, Samsung and Apple still collect more than 90 percent of the profit in smartphones, analysts say. Yet that success has also emboldened more and more companies to try to challenge them.

Article source: http://www.nytimes.com/2013/07/27/business/global/chipping-away-at-the-smartphone-leaders.html?partner=rss&emc=rss