Samsung and Apple Are Set to Continue Their Domination of the Global Smartphone Market
Samsung's hot new Android smartphone will help cement the company's co-dominance with Apple.
MINYANVILLE ORIGINAL Minyanville readers should be more than familiar with Samsung and Apple's (AAPL) co-dominance of the global mobile-phone industry. (See: Samsung and Apple Now Account for 86% of Smartphone Industry Growth.)
So it shouldn't be shocking to see that the two top dogs are getting even stronger, even though the industry is suffering a slowdown that is being largely ignored by the majority of investors.
Later this year, Apple will release iPhone 5, and odds are, it's going to be another smash hit, like every one of its predecessors was.
But for now, the hot story in the industry is Samsung's Galaxy S III smartphone, which is looking like the biggest and baddest Google (GOOG) Android smartphone in history.
Before its 28-country launch on May 29, the Galaxy S III picked up nearly 10 million pre-orders across the globe -- impressive when you consider that pre-orders at key US carriers AT&T (T) and Verizon (VZ) aren't available until tomorrow, June 6.
That marks the 68th anniversary of D-Day, when the Allied war machine hit the beaches of Normandy to smash the Axis war machine.
It's also looking like D-Day for Nokia (NOK), Research In Motion (RIMM), and Microsoft (MSFT), all of whom are likely to continue to suffer at the hands of the Galaxy S III, as well as the upcoming iPhone 5.
Let's take a big-picture look at the mobile-phone industry.
As you can see here, the industry has seen six straight quarters of decelerating year-over-year unit growth, ending with a negative 2% growth rate for the first quarter of 2012:
Now, let's look at the smartphone segment:
As you can see, over the past few quarters, industry growth has taken a big leg down.
And while Apple and Android have remained hot, with 115% unit growth in Q1, the rest of the industry fell by 35%.
According to Gartner, Samsung is 47% of Android, meaning the real fight is not Apple vs. Android.
It is between Apple and Samsung, and that has enormous implications up and down the supply chain. (See: The Samsung Bull Market Just Replaced the Android Bull Market.)
Here's how I think about it.
The success of the Galaxy S III and the certain success of iPhone 5 make it more-or-less mathematically impossible for Nokia, Research In Motion, or Microsoft to see market-share gains any time soon, and that stinks because it greatly reduces the number of attractive customers in the supply chain. (Note: I intermixed phone manufacturers Nokia/RIM and operating-system maker Microsoft because while they don't necessarily match up in the same statistical categories, they are in the same sinking boat)
And then there's Samsung and Apple's bizarre relationship.
Samsung isn't just a gadgetmaker. It's also a major semiconductor producer that makes key components not just for its own phones and tablets, but for Apple's as well.
In fact, Apple is actually Samsung's biggest customer, which is pretty bizarre when you think about how often they sue each other!
That eliminates a lot of potential business for everyone else.
Remember when SanDisk (SNDK) guided down and blew up on April 3? Here's what I wrote the next day:
SanDisk now expects to report first-quarter revenues of $1.2 billion versus prior guidance of $1.3 to $1.35 billion, and consensus of $1.3 billion. Additionally, gross margins are now expected to come in below the 39% to 42% range to which the company guided on January 25.
And keep in mind, that guidance SanDisk issued back in January in conjunction with its fourth-quarter results was disappointing itself -- so SanDisk is now on a bit of a losing streak.
Back then, SanDisk noted that some OEM customers weren't ordering as much as expected. Yesterday it echoed that revelation in its press release by attributing the current weakness to "weaker than expected price and demand."
Translation: We don't do enough business with Samsung and Apple.
The vast majority of mobile semiconductor makers compete in a somewhat commoditized market. Companies like Qualcomm (QCOM), NVIDIA (NVDA), Marvell (MRVL), Texas Instruments (TXN), Broadcom (BRCM), and others all have somewhat overlapping product lines.
They all want in with Apple and Samsung, but there's clearly not room for everyone.
Plus, the broader mobile phone industry is declining, and the smartphone segment is slowing, and who knows where Q2 numbers will end up given the trouble in Europe.
So while I'm staying long and strong with Apple because of its enormous product momentum, I'm shying away from the rest of the supply chain from top to bottom -- despite the already-huge declines in many of the aforementioned names.
What could change my mind?
Well, it would be nice to see Apple unravel its ties to Samsung and toss more business elsewhere. Specifically, I'm eyeballing (but not yet buying) SanDisk as a beneficiary of such a scenario.
And finally, it would certainly be nice to see the smartphone industry bounce back to the growth levels seen during the glory days of 2010/2011, or at the very least, seeing it sustain current growth levels.
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