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Friday, July 27, 2012
Samsung Regains Smartphone Leadership


Six months after losing the top position in the smartphone market to Apple, Samsung in the second quarter regained leadership as its sales rose 5 percent to 36 million units, up from 34 million in the first quarter.

Meanwhile, Apple suffered a 26 percent decline in shipments to 26 million units, down from 35 million in the first quarter, analytics provider IHS reported.

Samsung's modest increase was propelled by strong growth in high-end smartphone shipments.

Apple's shipments in the second quarter were impacted by a combination of factors, including macroeconomic variables, increased competition from newer smartphone offerings and delayed purchasing among consumers who are waiting for the availability of the next iPhone model. All this led to a buildup of channel inventory, resulting in lower-than-expected iPhone volumes.

"At the end of the first calendar quarter, the supply-and-demand equation for iPhones was in balance," said Wayne Lam, senior analyst, wireless communications, for IHS. "However, by the end of the second quarter, about 3 million iPhones built up in the sales channel that weren't sold to consumers. This contributed to the slowdown in Apple's shipments during the quarter, reminiscent of the deceleration Apple experienced in the third quarter of last year as consumers waited for the release of the iPhone 4S. Apple should see a rebound in shipments with the introduction of the next-generation iPhone model."

Meanwhile, smartphone shipments for Nokia declined further by 14 percent in the second quarter to 10 million units, down from 12 million in the first quarter.

"Nokia took an important step in its transition to the Windows operating system with sales of 4 million Lumia models in the second quarter," Lam said. "However, that was less than half of the total number of smartphones shipped by the company during the quarter. Thus, smartphones using the legacy Symbian operating system still outsold the Lumia Windows-based phones, indicating that Nokia still has a long to go to regain its footing in the market."

Samsung and Apple are vying for the top spot in the smartphone segment, with leadership sometimes switching from quarter to quarter. However, the reality is that the market increasingly is becoming a two-horse race, with Apple and Samsung enjoying a shared domination of the industry because of their respective strategies.

"Apple traditionally had created product designs that not only anticipate users' needs but produce novel functions that consumers have yet to articulate," Lam observed. "In many ways, Apple is the taste-maker for the mobile industry with its pioneering use of multi-touch navigation, along with an intuitive user interface and experience. In contrast, Samsung's market advantage is that it executes efficiently as a 'fast follower' in terms of design and manufacturing, producing dozens of smartphone models per year. Samsung monitors the big trends of smartphone designs, user needs and un-met market opportunities, creating products to fit those markets quickly and efficiently. In short, Apple leads with a single design that consumers gravitate to, while Samsung creates many designs and pursue the ones that customers respond to. Hence, Apple is more a thought leader, while Samsung is a very good and very quick thought follower in terms of product design."

For example, Samsung has successfully addressed all price segments of the smartphone spectrum, not just the high end of the market but also the midrange and particularly the low end, Lam noted. Furthermore, Samsung responds quickly to design leaders like Apple to create variations of similar-themed products based on the Android platform. It also tends to look for opportunities not yet addressed by Apple, such as smartphones with larger screen sizes. Here, Samsung was at the forefront of designing smartphones with a wide range of screen sizes to address different market needs.

While Apple and Samsung pursue varying product design strategies, they share a common attribute: the ability to adapt.

"Apple and Samsung have risen to the top partly because of slow adaptation among other competitors to the new smartphone paradigm heralded by the iPhone's arrival in 2007," said Daniel Gleeson, mobile media analyst for IHS. "The consequences of not adapting quickly are dire. Both Nokia and RIM are in the middle of costly platform transitions amid slumping sales, whereas Motorola has already been swallowed up by Google."

"Samsung is clearly the best in the industry at reacting and has the resources to pursue almost every technological innovation in some fashion," Gleeson added. "Meanwhile, Apple is showing clear signs of being a nimble organization. The latest update to Apple's iOS featured a switch in its maps application that will give the company much more freedom to innovate in location services in the future. This adaptability will be tested much more in the future as the design and capabilities of other smartphones are now matching those of the iPhone."

At the manufacturing level, there appears to be more similarities than differences between Apple and Samsung. Both are successful in tightly controlling their supplier base. And although Samsung still will have many different hardware designs in its smartphone portfolio, the company is moving toward consolidation of parts and designs. Furthermore, the cellphone division of Samsung leverages Samsung's internal semiconductor and display component supply chain to create scale and efficiency that can compete with Apple's leverage in the market.

Meanwhile, both companies have established ecosystems that that provide competitive advantages. Apple's closely guarded and carefully curated iOS platform and ecosystem is essential to its success. For its part, Samsung has begun to set itself apart from other Android manufacturers, and is establishing a user base that is loyal to the company and brand?to Samsung - instead of to Android in general.

"With the Galaxy SIII, Samsung launched the Samsung Music Hub featuring its own music streaming and download service in which the consumer has a direct billing relationship with Samsung," Gleeson said. "Samsung is trying to replicate the strong loyalty iPhone users have to Apple's phones, ensuring a solid base for future sales. While almost all Android manufacturers try to provide some user-interface differentiation to add value to their brands, this is one of the first instances of a smartphone manufacturer directly offering consumers a service."


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