Watch Out, Apple, Samsung's on Your Tail

Apple market share has been driven by its phones but Samsung and other competitors are gaining momentum.
By Tony Owusu ,

Apple's (AAPL) - Get Report  iPhone has never been the market share leader, but the smartphone has been the high-margin driver that allowed the tech company to temporarily secure the stock market's largest market cap. However, after the past two quarters of revenue declines -- the first time it has posted revenue declines in 13 years -- it is clear that its competition is gaining momentum.

Android-powered phones are the natural competitor to the iPhone in the West. Globally, Android phones had a 82.8% market share in second-quarter 2015. while iOS-powered phones accounted for 14%.

During the first quarter of 2016, Samsung (SSNLF) had the most unit shipments with 81 million, giving it a global market share of 23.2%. Meanwhile, Apple's global market share dropped to 14.8% in the first quarter from nearly 18% in the year-earlier period, and declined to 12% in the latest quarter. It's the smallest market share Apple has held since before 2009 when smartphone sales data first starting being collected.

Samsung released its second-quarter earnings results on Wednesday, surprising many who thought that sales of its flagship Galaxy S7 would experience a sharp decline. Instead, the company saw a 56% year-over-year increase in mobile-division earnings, helping Samsung reach profit margins it hasn't seen in three years.

Overall, Samsung, which makes other technology besides just smartphones, reported net income of $6.84 billion, a 2% increase over the previous year. Revenue climbed 5% to $59.6 billion. Samsung estimated that it shipped between 75.6 million and 78.3 million smartphones in the quarter, almost twice as much as the 40.4 million iPhones Apple shipped in the period.

Meanwhile, Apple reported a 27% decline in quarterly profits in the June quarter. However, the iPhone is such a profit driver for Apple that the company posted a gross profit margin of 38%, more than double Samsung's 16.3%.

But both companies will see tougher headwinds in the near term.

Global smartphone sales are expected grow at a single-digit percentage rate this year, about half the rate of growth it experienced in 2015. Part of the reason for the slowdown is that the market is already saturated.

Local Chinese smartphone manufacturers Xiaomi and Huawei have increased their shipments in recent quarters, and earlier this week Huawei reported that it is on pace to sell 140 million smartphones this year, a 30% increase over last year.

Apple -- a key holding of the Action Alerts PLUS portfolio -- is cognizant of these headwinds, and CEO Tim Cook attempted to address them during the company's latest earnings call.

"During the call, Cook explained that while the potential market share opportunity from Android users remains significant (having tapped into merely 42% of global smartphone users), the remaining 58% are very cost-sensitive and unlikely to switch in the absence of a cheaper offering to follow each new iPhone launch," Action Alerts PLUS co-managers Jim Cramer and Jack Mohr wrote in a recent note. "Ultimately, Apple has decided that any cannibalization as a result of SE sales is outweighed by the potential to expand Apple's total addressable market."

Editor's Note: This article was originally published at 5:54 p.m. EDT on Real Money on July 28.

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