Apple v Samsung: The Business Behind The Battle

Apple versus Samsung. This is a battle that has been heating up in recent years as these two tech giants emerged as the dominant forces in the smart phone sector. Apple and Samsung make up roughly 38% of the global smart phone market (IDC) and their growth shows no signs of slowing. But who is winning the battle between these fierce competitors? Apple is the most valuable company in the world by market cap, so its dominance financially is unquestionable.  If we focus in on the smart phone market in particular, the debate opens up. Apple does however, hold the power in Asia. Asia and China in particular, are important regions as they are the fastest growing smart phone markets. Samsung has struggled to gain a foothold in these markets and we will explore why. This battle has shifted many former competitors to the periphery and we will examine how this occurred. This article will explore the state of the smart phone market to determine just how dominant Apple and Samsung really are.

Apple and Samsung are incomparable when looking at overall revenues. Apple dominates not just the smart phone market but every other tech company in the world. Apple’s revenue for 2016 topped $215 billion and pre-tax income reached $61 billion. In contrast, Samsung’s revenue over the same period was roughly $174 billion while pre-tax profit was notably lower at $26 billion. iPhone sales account for a sizeable proportion Apple’s revenue and there is no doubt Apple have a winning formula. New iPhone’s are some of the most highly anticipated tech releases in the modern era and Apple certainly uses the hype to generate income. iPhone X sales have not been released but many outlets sold out in minutes and  analysts expect huge numbers. Despite the hype, Samsung still has a higher percentage of the global smart phone market. Samsung currently has a 23% market share while Apple’s fell to roughly 14%. This higher market share did not necessarily translate into stronger financials overall. A gap has opened up between them in as in 2013 Apple’s revenue was $170 billion while Samsung’s was over $190 billion.  The gap between their revenues now stands at $40 billion, in favour of Apple. There is no doubt Apple is winning the battle financially and its recent figures show no indication of this dominance waning.

Furthermore, a key area where Apple trumps Samsung is in their strength in Asia. Samsung has seriously struggled to shift it’s phones in Asia and the competition is only getting steeper. In China for example, there are over 700 million smart phone users yet Samsung only possesses 1.6% of the market. Apple on the other hand, has the fifth largest share in China with 7.7% of the market there. In Asia, competitors such as Huawei, OPPO and Xiaomi are significantly cheaper and provide all the same functions. Both companies struggle to compete, particularly in China. Apple in particular, has been criticised for a lack of innovation. One might think this would cause them to struggle in Asia. Critics claim Apple release their “new” products with features that have been available in many other smart phones for 2-3 years. Samsung’s latest advertising campaign (see below) utilises this criticism and it directly attacks Apple for their lack of innovation.

This criticism appears not to have affected Apple’s balance sheet. What Apple do provide is a sturdy and familiar operating system. The introduction of the Apple cloud meant that consumers with multiple Apple products could seamlessly access all their personal files on any device. The simplicity of the interface has been and still is one of the key appeals of Apple products. This appeal is partially what has led the company to its worldwide success. Despite this, its market share in China is still waning. It will be interesting to see how both companies intend to assert themselves in these important Asian markets over the coming years.

Apple and Samsung’s rise to dominance has not been victimless. The largest victim of Apple and Samsung has undoubtedly been Blackberry. Barely 10 years ago, Blackberry was at the forefront of the mobile phone industry and was deemed an absolute necessity for corporate business. The statistics alone tell the full story of its demise. In 2011, it boasted a 20% market share. As of late 2016, it held just 0.001% of the market. Blackberry was stubborn and failed to keep up with new trends at key market turning points. When the first iPhone was released in 2006 this was the beginning of the touch screen revolution but Blackberry stuck with its QWERTY keyboards. This fundamentally led to its downfall. Apple and Samsung began setting trends, cementing their positions in consumer markets for the next generations of smart phone users, while competitors like Blackberry were stubborn and faded into obscurity.

The question remains, who is winning the battle? Financially, Apple undoubtedly dominates the market but to call Samsung the “loser” in this scenario would be a misnomer. With annual profit of over £19 billion, Samsung is certainly winning but just not as much as Apple. Samsung is however, at the forefront of new technologies such as virtual reality so this could potentially lead to a shift in power. Furthermore, Samsung produces OLED screens used for iPhone X’s so even though they are rivals their success is somewhat interlinked. The mobile phone market has been one of the fastest areas of development in the modern era and shows no signs of slowing down. In rapid growth markets, companies can fall from grace just as quickly as they can reach it. Whether Apple and Samsung can remain dominant in the Smartphone market over the next decade will be contingent upon one thing.  It will not be whether they can keep up with consumer trends but whether they can continue to set consumer trends.

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