It’s not exactly a new trend, but it’s a continuation of a trend that should be eating away at Apple (NASDAQ:AAPL) shareholders while delighting over-the-counter shareholders Samsung (OTC: SSNLF). That trend is that Samsung continues to grow its share of the smartphone market, taking most of that extra share away from Apple’s iPhone.
Although it still has a smaller share of the market than Samsung, Huawei has taken over the smartphone market even more during the third quarter of the year, according to new data from the market research organization on technology. Gartner.
In some ways, it doesn’t really matter. Apple has known this day was coming for a long time, and it’s already gone deep into digital services like music, video, and apps. Yet with each passing quarter that sees Apple losing share of this important market puts more and more pressure on the company’s fledgling services arm.
Apple is not part of the two-horse race
During the third quarter, leveraging the popularity of its Galaxy series, Samsung shipped a total of 79.1 million units, representing 20.4% of a slightly contracting market. Its third-quarter 2018 shipments accounted for just 18.9% of the market. Apple, conversely, saw its third-quarter shipment market share fall from 11.8% a year ago to 10.5% last quarter. The big surprise? Huawei’s share increased from 13.4% to 17.0%.
Gartner senior research director Anshul Gupta commented on the current trend:
For the majority of smartphone users, the desire has moved away from owning the cheapest smartphone. Today’s smartphone user opts for mid-range smartphones over high-end smartphones because they offer better value for money.
And the trend is indeed continuing. Since 2015, Apple’s percentage market share has gone from mid-teens to just over 10% for a few quarters now. Samsung’s share declined to a lesser extent in 2018, but it appears to be on the mend now. Huawei, despite being collaterally damaged in the China-US trade war, has been able to offset this overhang by doing particularly well in China.
Not necessarily the end of the world for Apple
Although Apple is losing market share, as has been noted, it is making more deliberate efforts to grow its digital business. It made $12.5 billion in sales of digital products and services last quarter, and while the company hasn’t fully offset its iPhone revenue decline with digital products, the margin of exploitation on software and services can be twice as high as on hardware. Apple can be just as profitable with less revenue by continuing to grow its services business.
However, misleading timing could mitigate the ominous message found in the delivery numbers alone. Gupta noted, “The iPhone 11, 11 Pro, and 11 Pro Max saw good initial adoption, suggesting that sales could be positive in the remaining quarter.” In other words, Apple’s previous quarter ended in September and Gartner’s look was only through October, but iPhone 11 demand may not have started to pick up. firm up ahead of this month as the holiday shopping season approaches.
Still, Apple’s plans to generate more service revenue are vulnerable as its total number of iPhones shipped fell last quarter, more than the market as a whole. Apple shipped just 40.8 million smartphones in the third quarter, down from 45.7 million in the same quarter a year earlier.
As for Samsung, although it is now gaining market share, its best may yet be yet to come.
Without specifically naming Samsung as a major beneficiary, Gupta noted that “waiting for 5G network coverage to expand to more countries, smartphone users are delaying their purchasing decisions until 2020.” This delay arguably favors Samsung more than most of its competitors, but since it’s not only already the market leader in smartphones, it also makes the tower chips and infrastructure that make them work for carriers. wireless.
To that end, just this week, AT&T announced that it is taking pre-orders for its first consumer 5G device, which happens to be the Galaxy Note 10+, the 5G variant.
The big takeaway
It’s a concern for Apple shareholders, of course, although it’s not one investors might have suspected two years ago. It would certainly be beneficial if more consumers owned iPhones as the company aims to better monetize its existing user base. It can do it more and more even if the total number of i-devices stagnates.
Still, a growing user base would only help that effort.
More than anything, however, investors may want to refrain from jumping to drastic, unchanging conclusions. The advent of 5G connectivity next year and the subsequent rise of the Internet of Things will really spur a wave of replacement and upgrade purchases. It’s Samsung’s fight to lose, but never say never.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.