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Business sustainability in the mobile device wars

November 5, 2012

Continuing the theme of trying to understand what separates the Apples from the Samsungs, Nokias and Windows Phones of the mobile world, I read a great commentary this morning posted to the wire by Giles Hewitt, AFP’s bureau chief in Seoul. The article looked at the market sustainability of Apple’s approach to market as compared to the likes of Samsung.

While Apple, as most of us know, focus on a single product per line (iPhone, iPad, iPod etc), with annual upgrades and releases, Samsung has craftily ensured that while it always releases a flagship model to contest the iPhone in advanced markets, it also continually releases multiple lesser models that help it gain higher sales volumes overall by dominating the lower end of the market – users in emerging markets such as Brazil and China. This implies a number of things:

  1. Samsung garners early brand loyalty from high volumes of users acquiring their first ever smartphone.
  2. A phased product line allows for users to move up and down the value chain – while Apple only targets the top end of the smartphone market in terms of features, functionality and price point.
  3. By using the Android operating system, Samsung focuses all efforts on hardware development, while Apple must continually resource both software and hardware development.

The commentary points out that Samsung is able to retain higher market shares (40% is quoted by one analyst), but of course runs at roughly half the profit margin that Apple is able to achieve (20% compared to 40%). Apple’s numbers are converse – 20% global market share while retaining roughly 40% of revenue as profit according to the same analyst.

New data available from Gartner shows market share for the 2nd Quarter of 2012. While it’s well known that Nokia still retains strong and loyal market share in European markets, the strong position of Samsung in terms of total sales volume is obvious.

Global Device sales Q2 2012 – via Gartner

So if business sustainability becomes the next battle ground, then Samsung are clearly already miles ahead in terms of long term business strategy. They’ve already started to lock in the grassroots end of the market who will eventually become the fertile hunting ground for makers of premium smartphones – where they are already well placed.

There’s little doubt however that Apple, a company with a value of US$576 per share today and an expected net cash position of US $48 Billion by the end of calendar year 2012 will have sufficient resource to modify its business strategy in the years ahead.

Below, I’ve also included from the Gartner research a quick graph of the figures showing global sales during Q2 2012 CY by operating system, where the device was sold to an end user. It continues to reflect the growing dominance of the Android operating system, which extends across a range of manufacturer. Although it’s early days for the Microsoft Windows Phone 8 platform, I would expect to see Microsoft take some market share over the next 2 quarters as it leverages its existing loyal customer base and transitions them to tablets and other mobile devices via the introduction of Windows 8 and it’s allegedly seamless (I haven’t seen it in action yet) integration with mobile.

Mobile Device sales by Operating system, 2Q 2012 CY – via Gartner




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