This one’s gotta hurt for Apple.
Samsung just reported strong earnings last night, shipping 107 million phones in the second quarter of 2013 to Apple’s 31.2 million iPhones, and taking the title of most profitable smartphone vendor away from the the king of the high-end at the same time.
“We estimate Samsung’s operating profit for its handset division stood at US$5.2 billion in the second quarter of 2013,” senior analyst Neil Shaw of Strategy Analytics said in a statement. “Samsung overtook Apple for the first time, which recorded an estimated iPhone operating profit of US$4.6 billion. With strong volumes, high wholesale prices and tight cost controls, Samsung has finally succeeded in becoming the handset industry’s largest and most profitable vendor.”
The problem for Apple?
The company has failed to bring out new models — and especially a cheaper iPhone — so its product mix has shifted away from the latest and greatest to older models. In other words: too many lower-margin iPhone 4s and 4Ss.
“Apple’s reign as the world’s most profitable handset vendor lasted almost four years, from Q3 2009 to Q1 2013,” Neil Mawston, also of Strategy Analytics, said. “Apple’s profit margin for its handset division has been fading recently due to lackluster iPhone 5 volumes and tougher competition from rivals.”
The other problem is the familiar Apple story: strong sales in the U.S., where its premium strategy is working perfectly, and weak sales overseas, where cheaper Android-based smartphones are sweeping the market. In fact, despite some good forward-looking news in China, where Apple now has 500,000 iOS developers, Apple’s overseas sales were almost all bad news in Apple’s recently-released earnings report.
China was down $3.6 billion sequentially, Europe was down $2.2 billion, and Asia Pacific was down $1.2 billion, adding up to a fairly devastating international earnings picture.
“Apple is now under intense pressure to launch more iPhone models at cheaper price-points or with larger screens to fend off the surging competition and recapture lost profits in the second half of 2013,” Mawston added. “Samsung is performing well in the US market, while Huawei, ZTE and other local brands are growing vigorously in China.”
Apple has no one to blame but itself for losing the crown of the smartphone industry.
Apple CEO Tim Cook told us months ago that there would be no new products from Cupertino until this fall. The reality is that this has seen Apple turn in a lackluster Q3 2013 performance, with good iPhone sales (but bad product mix) and poor iPad sales.
Some analysts are writing off 2013 for Apple and looking forward with hope to next year:
“We believe FY13 will prove to be a year to forget, but FY14 will prove to be a year of new product innovations, which we believe will prove positive for the stock price,” Topeka Capital Markets analyst Brian White said.
Cook and company continue to defy Wall Street’s requests for a cheaper iPhone for international markets and repeat the mantra that by focusing on great products everything will be fine. Asked by an analyst whether Apple would be releasing any new product in Q4 this year, Cook simply said:
“We’re here to make great products … if we focus on that and do that really well, the financial metrics will also come.”
Here’s a little shocker for Cook: You actually have to release those products, if you want to prosper.
Some time this year would be nice.