Why Apple fears Samsung Galaxy S IV

Early this evening, during a New York soiree, Samsung launched the Galaxy S IV smartphone. The venue is atypical. The South Korean electronics giant usually starts from home, offering new smartphones globally before reaching the United States. Now, in a dramatic change, a flagship Galaxy phone lands on Apple's home turf first.

The companies are in a struggle for smartphone supremacy, with Samsung leading in most countries. With one glaring exception: The United States. Today's venue clearly marks the South Korean manufacturer's intentions to take the share lead from its American rival.

Apple responded to today's launch S4 by sending out marketing chief Phil Schiller to talk down Samsung, its products and Android generally. But big headlines from blogs and news sites fall far short of offering a competitive product. The fruit-logo company rarely sends anyone on such a talking-down door. Surely someone is worried in Cupertino, Calif.

Even a year ago, the electronics giant wouldn't have been so bold as to launch here, but Samsung's brand acceptance is up, in part because of the success of Galaxy S III and Galaxy Note II and some aggressive and creative marketing. Samsung also benefits from high-profile conversions, like prominent Mac journalist Andy Ihnatko switching to the S3 from iPhone 4S.

Samsung Soars

To say Samsung is on a roll is an understatement. During 2012, the company captured the No. 1 spot for all handsets and also smartphones. For the full year, as measured in actual phone sales to end users, Samsung share reached 22 percent -- that's from 385 million units, according to Gartner. Share was a tad higher for fourth quarter: 22.7 percent. Meanwhile Samsung smartphone sales soared 85 percent or nearly four times that of Apple.

Samsung's sales success strongly weighs against Android, not just Apple. During fourth quarter, Android smartphone share rose to 69.7 percent from 51.3 percent a year earlier. By comparison, iOS fell to 20.9 percent from 23.6 percent. Samsung sold so many smartphones, it accounted for 42.5 percent of all Android sales in the category.

"The Android brand is being overshadowed by Samsung's brand with the Galaxy name nearly a synonym for Android phones in consumers' mind share", Anshul Gupta, Gartner principal research analyst, says. Samsung's success is mixed for Android as a platform. The South Korean company, and not Google, largely controls customers' experience via TouchWiz UI and other features.

Dollars and Sense

Mobile makes huge contributions to Samsung's bottom line. For Q4, the South Korean electronics giant reported revenue of about $52.45 billion and $6.55 billion profit. Mobile division revenue was $25.35 billion, and Samsung credits success largely to two devices -- Galaxy S III and Galaxy Note II. Interestingly, Samsung mobile ASPs are rising, and analyst data shows expansion across the globe -- particularly markets once dominated by Nokia, China among them. Samsung credits sales to emerging markets as a bright point for the quarter.

They also happen to be where all the big sales growth is and where Samsung displaces, or replaces, leader Nokia. IDC predicts that emerging markets -- Brazil, China and India, particularly -- will be the biggest growth areas for smartphones, which accounted for 45 percent of all handset sales in Q, according to Gartner.

Apple struggles to get beyond the wealthiest consumers in this markets because:

  • Subsidies make selling prices higher
  • Contract commitments are required in countries where non traditionally are required

For example, "China is a massive growth prospect, but Apple is not making the market share impact there that it is in other markets", Nicole Peng, Canalys China research director, says. By contrast, Samsung is a top vendor there elsewhere.

Unquestionably, Samsung blindsided Apple, much the way the American company did to competitors BlackBerry and Nokia. They didn't see iPhone coming. Clearly Apple execs expected much less success from the so-called copycat.

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