The Apple Rival You May Have Missed

NEW YORK ( TheStreet) -- Something interesting happened recently that flew under the radar of many Wall Street observers.

Analysts frequently assume it's a foregone conclusion that Apple is the king of the smartphone race while they detail Research In Motion's ( RIMM) and Nokia's ( NOK) struggles to catch up.

But recent evidence suggests that the real leader of the race is South Korean electronics giant Samsung.

Cause for Concern?

For the first time ever, Samsung is able to claim the throne as the world's No. 1 handset vendor by having sold 94 million devices -- including smartphones and "dumbphones" -- worldwide, meaning that it has a significant share of the smartphone market.

The company's leadership position in the fast-growing 4G LTE segment has boosted increased demand for its family of phones, which includes the Galaxy as well as superphones.

Apple's fall to second place is only part of the surprise. Investors should also note that for the first time in 15 years, Nokia ( NOK) Nokia is out of the No. 1 spot in overall handset sales, after it sold only about 83 million devices.

In the case of Samsung, what's interesting is that it's name is often an afterthought on Wall Street. When discussing Samsung's phones, people typically refer to them first with the word "Android," the name of the Google ( GOOG) operating system on which Samsung's phones run.

The disrespect of Samsung has had a lot to do with the pro-Apple bias among analysts and, to a lesser extent, some slight favoritism toward Google.

Of course, none of this means that Apple is about to rot.

But it does make one wonder how Apple will react, and it raises questions about how Samsung got to No. 1.

With Apple and Samsung having accounted for more than 70% of the global smartphone market, the "new foregone conclusion" should be that it is now a two-brand race with Samsung as the leader.

What has been most impressive about Samsung is how it has addressed consumers' budgetary concerns and focused its attention on offering a wide selection of phones including those with very reasonable prices.

Although the iPhones are exceptional in design and features, they are priced out of the reach of many consumers.

Clearly Samsung's strategy has been effective and has allowed it to seemingly come out of nowhere and claim the throne. But the skeptic in me can't help but to think, "So what?"

Although this is now a two-brand race, at one point there were other big contenders such as RIM, Motorola ( MMI), HTC, LG and, of course, Nokia, a company that was where Samsung is now but couldn't leverage its advantage.

So why should Apple care that Samsung is now in the top spot after Apple systematically knocked out its rivals by simply focusing on its own execution and doing what it does best?

Moving Forward

Although dismissing the competition is never a smart thing to do, I think the bigger mistake for Apple would be to let the competition dictate its next move -- that has never been the company's style.

It sets trends; it doesn't follow them.

Samsung appears to be winning by pricing its phones lower, but its challenge will always be to find ways to win in the most important metric of all, its margins -- an area in which Apple dominates.

So as surprising (if not painful) as it is for Apple investors to see the word "winning" next to Samsung on the phone category, it does not imply that the company is any more successful in areas where it matters most to investors.

But if Samsung has learned anything from RIM and Nokia, it is that it must find a way to take advantage of its current volume to get its customers to pay for the higher-margin phones.

Bottom Line

What has been the biggest "foregone conclusion" on Wall Street should no longer be considered so.

Samsung is proving that as great as Apple is, Samsung has become a force in its own right.

It may be premature to say that Apple should be concerned.

Clearly, Apple and Samsung companies have entirely separate business models with different goals -- both of which appear to be working perfectly.

That said, investors should keep an eye on Samsung, particularly if starts gaining more ground in the high-margin area.

(Investors should also pay attention to one possible threat to both Apple and Samsung: the launch of the new Windows phone from Nokia and Microsoft ( MSFT) later this year.)

At the time of publication, the author held shares of Apple and Microsoft.

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