Why Samsung beating Apple could be good news for iPhone 5

Apple [AAPL] haters are dancing their best happy dance today, celebrating Samsung's seizure of the biggest-selling smartphone crown even as the copycat case between the two firms takes an insanely childish turn. Enjoy it while you can, because the portents are that this victory won't last. Here's why:

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[ABOVE: Strategy Analytics smartphone market share data.]

Apple wanes as Samsung's star rises

Let's begin with the news as reported by Strategy Analytics:

"Global smartphone shipments grew just 32 percent to 146 million units in Q2 2012, the industry's slowest growth rate for almost three years.
Samsung shipped 51 million smartphones worldwide in Q2 2012, the largest amount ever shipped by a vendor in a single quarter. Its marketshare is now double Apple's."


Samsung also caught 26 percent of the wider mobile phone market.

The quarter did reveal one strange statistical anomaly. "This was the smartphone industry's slowest growth rate for almost three years. Samsung and Apple together captured over half the global market," Strategy Analytics explained.

Alex Spektor, Associate Director at Strategy Analytics, explains why (emphasis is my own, from press release): "Global smartphone shipments grew 32 percent annually to reach 146.1 million units in Q2 2012. This was the smartphone industry’s slowest growth rate since the third quarter of 2009. A volatile global economy, maturing penetration of smartphones among contract mobile subscribers, and some Apple fans holding off purchases in anticipation of a new iPhone 5 model later this year were among the main causes of the slowdown," he said.

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[ABOVE: Also from Strategy Analytics, what's happening in the wider handset market.]

Neil Shah, Senior Analyst at Strategy Analytics, in a press release added: "Apple shipped 26.0 million handsets worldwide in Q2 2012. Apple delivered 28 percent annual growth, which was bolstered by solid demand in Asia. Apple’s next major task is to ensure that the upcoming release of its rumored iPhone 5 upgrade is a success. The hardware design, screen size and any integrated new technologies for the iPhone 5 will need to wow consumers and operators and make the new model stand apart from competitors like Samsung’s Galaxy S3."

Seasonality: Apple shines as Samsung falls

"Wow!" say the Android-lovers among us all. "Samsuing sure is giving Apple a kicking." I'd argue that while the statistics can be seen this way, there's more underlying forces in action here. The slow down in smartphone sales generally and iPhone sales specifically is perhaps explained by the pent-up demand for the iPhone 5.

Smartphones are not a technology market, but a consumer market. In a report published earlier this week I explained what is happening in the consumer market.

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iPhone 5.

"Advance demand for the 'iPhone 5' is strikingly higher than we've seen for any previous iPhone model," said Dr. Paul Carton, 451/ChangeWave's VP of Research. "Overall smartphone sales should spike to an all-time high this fall, and of course Apple is going to be the number one beneficiary. But besides Apple, and to a lesser degree Samsung, no other manufacturer is likely to benefit from this coming wave of demand."

So, we've just been through a period in which smartphone sales saw their slowest growth rate for almost three years (Strategy Analytics). The iPhone 5 is coming and advance demand for the device is higher than for any previous iteration.

Consumer interest in the next-gen Apple iPhone is really, really high. You can determine this easily by looking at the number of iPhone 5 reports in circulation. These things are being widely read by a public hungry for the next generation.

Apple partner, Foxconn, fuelled speculation's flames with claims the next version will "Put Samsung's Galaxy III to shame". Meanwhile, others anticipate this will be the biggest consumer electronics device ever seen.

What does this mean?

It means there's a high probability Apple's iPhone sales are going to spike -- really spike -- on the device's release. Well, assuming Apple doesn't get it wrong, which it hasn't so far. On that I agree we must wait and see.

Take a look at the chart below, also from earlier this week that shows the huge initial spike for iPhone 4S sales. Then compare the shape of that spike with the historical momentum seen in iPod sales following product upgrades. I believe Apple is about to see a similar spike for iPhone 5 on that product's release, and there's a chance that spike could exceed the size of any previous pattern, given the signs of pent-up demand.

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[ABOVE: The yellow spikes represent the historical sales pattern for new iPod releases. The big blue one is the sales pattern for the iPhone 4S.]

High risk, no guarantees

There are a few things that could undermine Apple's attempt, for example:

  • Consumers may not like the new iPhone;
  • An unexpected technical flaw could dampen enthusiasm (and rest assured, Apple's competitors will be taking the product to pieces to find just one flaw they can get the media writing about);
  • A lot depends on price -- the recession is real and people are becoming more frugal;
  • Apple may be unable to meet demand -- can its partners keep up?

I don't believe Apple will deliver a smartphone that fails to set a new standard for these devices. I'm also prepared to question if it will deliver an iPhone 5 in Fall -- speculatively, I've kind of fallen for my argument yesterday favouring a lower-cost iPhone nano type device. I agree that's way out the park, but I do find such speculation engaging.

Samsung also faces risks and challenges:

  • It doesn't make the OS so can't deliver Apple's standard of tight device/OS integration;
  • It cannot be seen to slavishly emulate any features Apple might introduce in iPhone 5 if it truly wants to dismiss the popular "copycat" label that sticks to it;
  • It remains open to unanswered questions concerning working conditions in its factories;
  • And, as Apple is experiencing right now, it must still look forward to the media backlash that attends success at any level.

Long-term success for either party is not guaranteed.

In this case -- and I concede I could be wrong -- looking at the evidence logically suggests the iPhone 5 will set new records for smartphone purchase. Samsung's success reflects general demand for these devices, while the smartphone industry growth slump hints at a huge build-up of demand for Apple's next trick. And that's before we throw the wild card of Windows 8 smartphones into this volatile and competitive industry mix.

I'm highly curious to see what happens. Are you?

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