If there’s one thing that’s clear today, it’s that Apple has been completely right in its smartphone strategy so far.
While there were many people (including people who work for Business Insider) shrieking that Apple was going to get knocked flat by Samsung and Android, it’s looking increasingly like that’s not going to happen.
Samsung delivered a rough earnings report yesterday. For the third straight quarter it posted a drop in operating income. This time, operating profit dropped 25% on a year-over-year business. It was dragged down by the mobile business which actually saw profits drop 30% on a year-over-year basis.
During the same period, Apple’s operating income was up 12%. Apple doesn’t break out its iPhone line in terms of operating profit, but iPhone sales were up 9%.
It gets worse for Samsung. Its market share slid to 25.2% of the smartphone market for Q2, down from 32.5% last year in the second quarter. Apple’s market share slid as well, but by a smaller amount, going to 11.9%, down from 13.4%. Reuters reports, “Samsung was the only major manufacturer to report a drop in absolute number of shipments” during the quarter.
So, what’s eating Samsung? It’s fighting, and losing, two battles.
At the high end it’s competing with Apple. Apple isn’t going anywhere. It remains strong thanks to a sterling brand, high-quality phones, and iOS, the best mobile operating system in the world.
At the low-end of the market it’s competing with upstarts like Chinese phone maker Xiaomi, and an army of Android phone makers that use Android. There’s little reason for a consumer to pay a premium for Samsung phones instead of a Samsung clone.
This is all instructive when thinking about Apple and what it should do in the future. While there are people pushing Apple to lower prices on the iPhone, it seems like Apple is doing the exact right thing by keeping it’s phones priced at a premium. It has expensive, new high-end phones that generate healthy sales and profits. They also establish Apple as a premium phone maker.
Apple isn’t ignoring the low-end of the market, though. It sells older iPhones at lower prices. Those phones are doing very well and it’s reflected in the company’s earnings.
The danger for Apple is that it whiffs on the next wave of mobile users who are coming from emerging markets. But in the last two earnings calls Apple has made it clear that it’s doing well in those places despite selling relatively expensive phones.
Sales in the Greater China region were up 28% on a year-over-year basis last quarter. On the earnings call, CEO Tim Cook said sales in Brazil, Russia, India, and China (the BRIC countries) were up 55% on a year-over-year basis.
On Apple’s March quarter earnings call, Cook said, through the first half of fiscal 2014, iPhone sales in Brazil were up 61%, in Russia up 97%, in Turkey up 56%, in India up 55%, and in Vietnam they were up 262%. Cook pointed out that these are not “historic strongholds” for Apple.
Looking at those numbers, and comparing them to where Samsung is at, it’s hard to argue that Apple is making a mistake with the iPhone business.
Apple was right to ignore the pundits calling for a lower cost phone last year. And if it ignores them again this year, it will probably be the right call once again.
Bottom line: Apple knows what it’s doing.
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