[WSJ] 삼성과 애플 _ The Two-Horse Smartphone Race

The Two-Horse Smartphone Race

 

The Two-Horse Smartphone Race

Apple, Samsung Use Different Playbooks in Battle for Supremacy; For Rivals, It's Specialty vs. Scale

 By JESSICA E. VASCELLARO and EVAN RAMSTAD

Apple Inc. Aand Samsung Electronics Co. should make it abundantly clear this week that the smartphone industry is increasingly dividing into the haves and have-nots.

Apple and Samsung have emerged as runaway leaders in the smartphone industry. But they have climbed to the top using very different playbooks. Jessica Vascellaro reports on digits. Photo: AP.

The two companies are expected to report record earnings for the first three months of the year, largely on the strength of smartphone sales. They together ship nearly half of all smartphones, pushing aside weakened competitors such as Nokia Corp.and Research In Motion Ltd.

 

Yet Apple and Samsung—two rivals separated by about 5,000 miles—have climbed to the top using very different playbooks.

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Apple, the world's most valuable company, sells just one phone, the iPhone. The Cupertino, Calif., company emphasizes design and profitability over sales. It also invests heavily in its consumer brand and its tightly controlled retail stores, and it benefits from a strong ecosystem of software and apps.

Meanwhile, Samsung, the world's largest tech company by revenue last year, goes for scale. The South Korean company is a fast-follower that places its bets broadly, creating multiple versions of myriad products such as its Galaxy smartphones to suit partners' needs. It maximizes profits by controlling its own manufacturing.

Their divergent paths are proof that vastly different models can prevail. Apple and Samsung are each close to commanding 25% of the global market share of smartphone unit shipments, according to research firm IDC, which estimates the smartphone market will reach $219 billion in sales in 2012.

The two companies were the only major smartphone makers to gain share in the fourth quarter. Apple's market share reached 23.5%, up from 16% at the end of 2010. Samsung held 22.8% of the market in the same quarter, up from 9.4%.

 

In addition, Apple and Samsung combined to grab 91% of the operating profits of all cellphone makers in the fourth quarter, up from 61% last year, according to Strategy Analytics, a London-based market research firm.

"At this stage, it does look like these two are pulling away," said Manish Nigam, a technology analyst at Credit Suisse in Hong Kong.

The battle for supremacy has caused clashes between Apple and Samsung. In April 2011, Apple sued Samsung over smartphone designs and patents. Samsung countersued, and their legal battle spread to courts in nine countries.

Recently, Samsung has taken Apple head-on in its marketing for its Galaxy smartphone, with commercials that mock Apple enthusiasts.

But the companies have also learned to work with each other. Apple is the largest customer for Samsung's component divisions, which make display screens and chips. And their legal fight hasn't slowed down the sales or financial performance of either company.

Apple and Samsung declined to comment.

Despite their dominance, "it won't be a two-horse race forever," said Rajeev Chand, head of research for boutique investment bank Rutberg & Co. He notes that smaller players like telecom-equipment maker Huawei Technologies Co. are growing, albeit at a small scale.

Indeed, the phone industry has been characterized by fast-moving product cycles, where even one missed cycle can result in a slide. "This industry moves in cycles where some companies dominate for a while and then go down," said Neil Mawston, executive director at Strategy Analytics. "In the 1980s, it was Motorola, then Ericsson and by 2000, it was Nokia's turn. Now, it's Apple and Samsung."

The industry is taking defensive steps to react to the growing dominance of both companies. Verizon Communications Inc., whose investors are irked by the cost of carrying the iPhone, said last week it would also support phones powered by Microsoft Corp.'s Windows software. In the U.S., carriers pay around $400 to subsidize the cost of each iPhone, analysts estimate.

"It's important that there is a third ecosystem that's brought into the mix here, and we are fully supportive of that with Microsoft," said Verizon's finance chief Francis Shammo last week.

AT&T Inc., for a similar reason, threw significant weight behind Nokia's Lumia 900, also powered by Windows. Nokia said last week that U.S. sales were strong but overall were "mixed" and that it would "deeply" lower new Lumia prices.

Verizon and AT&T declined or didn't respond to requests for further comment.

Samsung's momentum is particularly striking. Analysts expect the company, relying heavily on phones run by Google Inc.'s Android software, to double the size of its smartphone shipments this year. Last year, Samsung shipped 94 million units, according to IDC, compared with Apple's 93.2 million.

Samsung has been able to vault past former market leader Nokia by embracing multiple operating systems and, when Android emerged from the pack, by putting more resources behind products that use that software. Samsung used a similar strategy when other electronics products, such as televisions and DVD players, went through technology transitions.

Samsung has also benefited from dealers' desire to offer alternatives to the iPhone, giving them more products to work with in stores at multiple price categories. Like Apple, Samsung's scale enables it to pay lower prices for components than competitors.

Samsung has created five levels of Android-based phones that are distinguished by price and features, with two or three models in each level to help carriers and other distributors stand out from each other. The company is also making phones based on Microsoft's Windows Mobile software and its own Bada operating system.

Next week, Samsung is expected to unveil a new version of its flagship Galaxy S smartphone with an event in London that has generated buzz among industry buffs.

Samsung, which reports earnings on Friday, is expected to show an 80% jump in net profit to around $4.4 billion, driven largely by cellphones but also boosted by strength in chips and a rebound in its TV business, the world's largest.

Apple, which reports on Tuesday, is expected to record a 57% jump in net income to $9.4 billion, according to Thomson Reuters.

Apple, which keeps some older iPhone models on the market, sold 37 million iPhones in last three months of the year, more than doubling its year-ago tally. But Apple's single-product strategy is likely to be tested as smartphones become common, particularly in less affluent markets like India and China.

Apple shares were recently up nearly 60% for the year. But the stock has suffered losses lately, due to profit-taking and concerns about how long its growth can last.

"Apple is reaching a fork in the road where it needs to decide whether it remains a high-priced player or enters the midrange mass market," said Mr. Mawston.

Write to Jessica E. Vascellaro at jessica.vascellaro@wsj.com and Evan Ramstad at evan.ramstad@wsj.com