Everyone Loves iPhone 5, Further Screwing Up an Unbalanced Smartphone Industry

By Michael Comeau  SEP 21, 2012 11:15 AM

Apple's new iPhone 5 is a megahit.


MINYANVILLE ORIGINAL Everyone loves Apple's (NASDAQ:AAPL) iPhone 5.

And when I say everyone, I mean normal people that spend money, and not the dopey loudmouths that think specifications are all that matters in consumer electronics. (You know who you are....)

On Monday morning, Apple reported that iPhone 5 pre-orders topped 2 million in the first 24 hours on sale, more than doubling the initial demand for the iPhone 4S. Keep in mind, the iPhone 4S was a monster, monster hit. In its first full quarter on the market, the 4S sold 37 million units, crushing Wall Street estimates in the 30-32 million range.

Subsequent to Apple's announcement, mobile-phone carriers around the world, including AT&T (NYSE:T), Japan's Softbank, and Singapore's Singtel all reported huge demand for iPhone 5.

And as of the time I'm writing this, Apple.com says all iPhone 5 models will ship in three to four weeks, up from the two- to three-week wait time listed on Monday.

But let's talk about what's on your TV right now -- footage of people all over the world crammed outside Apple stores for the privilege of handing over hundreds of dollars for a smartphone on day one.

There is simply no greater bull case for Apple than that, because it's indicative of a passion that no other consumer electronics brand in the world can match.

Look at Nokia (NYSE:NOK) and Research In Motion (NASDAQ:RIMM) -- I don't recall many crowds lining up for their recent Lumia and BlackBerry models.

But you probably knew all this, right? Well, one thing you may not know is the degree to which Apple and Samsung (KRX:005930) now control the smartphone industry.

A lot of people think they 'get' how big the Apple iPhone and Samsung Galaxy lines are, but I want to throw some truly underappreciated numbers at you.

I call them underappreciated because every time I recite them to someone, they look at me like I have eight heads. Investors far too often overestimate the uniqueness of their knowledge base and ideas, but sometimes I feel like I'm the only person who takes five minutes to do this math.

And keep in mind, I'm no genius -- I got a B- in pre-calculus in college!

So let's look at IDC's Q2 2012 smartphone market share numbers:

So let's get down and dirty.

To start, let's add up Samsung's and Apple's market share:

32.6% + 16.9% = 49.5%.

Now let's figure out Samsung's and Apple's combined year-over-year growth rate. That would be calculated as follows:

(50.2 + 26.0)/(18.4 + 20.4) - 1 = 96.4%

Wow! That's a lot bigger than the industry's 42.1% growth rate.

So let's strip Samsung and Apple out of it and see what we get.

It goes like this:

(153.9 - 50.2 - 26.0)/(108.3 - 18.4 - 20.4) -1 = 11.8%

Think about that.

Apple and Samsung grew 96% while the other half of the industry grew by just 12%.

12%! And I want you to remember something -- Apple had lousy iPhone sales during the second quarter because consumers started to delay their purchases in anticipation of iPhone 5.

So Apple's smartphone market share is actually set to skyrocket through the back half of the year!

That 49.5% number could easily hit the 55-60% mark if not higher by year-end, which creates a whole lotta problems for every component supplier that isn't hooked into Samsung and/or Apple.

In fact, this morning, I caught this little excerpt from a Needham research note on chipmaker Skyworks Solutions (NASDAQ:SWKS): "Unfortunately, weak demand from certain OEM customers appears to be offsetting rev growth at AAPL driven by increased dollar content in the iPhone 5."

Of course, as part of our duty to investors, we've been screaming and hollering about this undercovered issue all year long. (See Samsung and Apple Now Account for 86% of Smartphone Industry Growth.)

We also can't ignore what's going on in the tablet market. Apple is actually taking market share from the Google (NASDAQ:GOOG) Android tablets that were supposed to shake things up! (For more information on this important topic, see these two articles: IDC's 1% Tablet Forecast Increase Masks a Huge Decrease in Expectations for Google Android and Why the Google Android Tablet Market Is Far Weaker Than It Seems.) So the tablet market is even more unbalanced than the smartphone market, and I don't want to see what happens when the dramatically underpriced Amazon (NASDAQ:AMZN) Kindle Fire HD hits it big. (See Amazon's Kindle Fire HD Is a Menace to Android and a Friend to the iPad.)

The bottom line is, if you're a chipmaker that isn't selling to Apple in a big way, then you're in big trouble.

To be clear, in addition to my big position in Apple, I'm long SanDisk (NASDAQ:SNDK) based on my belief that people will wrongly or rightly think Apple will shift business there. I don't care if it's true or not, I'm just betting on other people's perceptions for the short term. I'm also increasingly tempted by Qualcomm (NASDAQ:QCOM), which I believe is, in fact, doing huge business with Apple.

OK, I'm done. Have a nice weekend!

Twitter: @MichaelComeau

Position in AAPL, SNDK

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