MorningWord 7/31/14: Mobile Wars $AAPL

by Dan July 31, 2014 9:31 am • Commentary

In our continuing (seemingly unending) coverage of all things Apple, I would be remiss NOT to mention last night’s Samsung’s Q2 results that illuminated the growing threat to the existing mobile device establishment.

From Business Insider:

The South Korean giant, which reported its worst quarterly profit in two years on Thursday, saw its share slide to 25.2 percent from 32.6 percent a year ago, while Chinese rivals Huawei Technologies Co Ltd and Lenovo Group Ltd have gained, Strategy Analytics said.

The latest figures illustrate how Samsung – although still dominant – has lost its footing two years after it overtook Apple Inc as the world’s smartphone market leader.

Even though total smartphone sales rose to 295.2 million units during the second quarter from 233 million a year ago, Samsung was the only major manufacturer to report a drop in absolute number of shipments.

Samsung warned investors on Thursday that the second half of 2014 will remain “a challenge”, citing competition from its rivals.

Xiaomi Inc, the three-year-old company known as the Apple of China, has become the world’s No.5 smartphone maker

In this space yesterday (MorningWord 7/30/14: iPad Bro? $AAPL), I addressed mounting evidence that the tablet market in the developed world has not shown any meaningful growth, and the next leg of geographic expansion for the category in emerging markets will likely see OEMs compete on price rather than features, which should dramatically impede profitability on the high-end. On Apple’s Q3 call last week, Tim Cook said that 50% of new iPad sales are going to first time buyers.  These are likely in emerging markets, and as stated above, these sales could have a distinctly lower margin.

Here were a few choice headlines to come out of Samsung’s conference call, per Bloomberg:





Samsung’s smartphone market share decline and a hit to profitability could set the stage for a fairly dramatic price war leading up to Apple’s looming iPhone 6 launch and beyond. We are very likely to see BOGO (Buy One, Get One) Free deals, and after the calendar quarter Q4 surge and iPhone sales settle, I suspect the Chinese and the Koreans will look to compete on a more level playing field as they will not expect a new form factor from Apple until the Fall of 2016.

iOS devices (iPhone and iPad) account for 70% of Apples’s total sales.  It makes sense to assume to assume that the iPad will be a single digits sales contributor some time in the near future if the company does not attach it to their expected wearable strategy or something to do with the connected home/internet of things.


This morning there are news reports that any hopes for a new Apple TV (that could presumably be the hub for the connected home) have once again been pushed out (read here), and further rumors that the iPhone 6 will not be out until October (from the originally expected September, read here).  These developments emphasize the growing importance of new products to maintain industry-wide margins at a time where it appears a global price war is looming in the mobile market.

So I am now going to end this post with Monday and yesterday’s posts closing paragraphs. from Tuesday:

As for Apple, with the stock likely to touch the prior all-time highs this week, highs that this guy thought would take a heck of a lot longer than 22 months to re-take, I think it is important to remember that sentiment can be a force to be reckoned with when it comes to investing. While Apple’s ascent back to the highs has little resemblance to the mania that existed in 2012, the stock has rallied 35% in the past 3 months, so expectations are quite a bit higher. That might mean some near-term struggles for the stock. However, the long-term business machine that is Apple Corp. is still doing a fabulous job of pleasing customers around the world, including my daughter and me.

From yesterday:

So after my love-fest on Apple yesterday (from a consumer standpoint – MorningWord 7/29/14: King of the Beats – $AAPL), this morning a word of caution at a time when it feels like the entire investment community is in universal agreement that there is very limited downside in the stock heading into the iPhone 6 launch in September.