Apple vs Samsung: The Next Chapter

| March 18, 2013 | Hit The Market | | 2 Comments

Apple (NASDAQ: AAPL) and Samsung (PINK: SSNLF) began battling it out for dominance of the lucrative smartphone market.

Just prior to his death in 2011, Steve Jobs declared World War III on Samsung for patent violations. Today, the war for the smartphone market rages on and the Apple vs Samsung saga rolls on.

In fact, the two companies are engaged in more than 50 lawsuits in more than 10 countries, with billions of dollars in damages at stake.

Apple won a major victory when a jury in San Jose, California ruled in favor of Apple and a judge awarded the company $1 billion in damages from a patent lawsuit against Samsung. Despite the verdict, tens of millions of dollars in specific damages are still held up in appeals court as Samsung and Apple continue their legal battles.

While Apple and Samsung are not the only companies in the smartphone market, they are by far the biggest and most important. Together, Apple and Samsung account for over 50% of the global smartphone market. The two companies rake in over 90% of the profits from this business.

There are two recent developments in the ongoing battles between Apple and Samsung that investors should know about.

Samsung Launches Galaxy S4 Smartphone

Just last Thursday Samsung launched its newest smartphone, the Galaxy S4. Its features are impressive and it hits the market on April 26th in 155 countries. The phone is slightly thinner and lighter than its predecessor – the Galaxy S3 – but has the exact same height and screen size.

When it is released for sale it will be the most advanced smartphone on the market. It has twice the RAM and an even sharper screen than the iPhone 5.

Take a look at this video that Samsung put together to show off its features and specifications:

Apple iTV and iWatch Expected

Apple expected to release an iPhone 5s sometime in 2013. And the technology giant is also expected to release a smart television and an iWatch before the end of the year.

While rumors of the iTV have floated around for years, leaked reports from suppliers suggest it will become a reality within the next six to nine months. This product is expected to further the reach of Apple’s ecosystem, through which customers can purchase or rent movies, buy music, purchase games and much more.

I wrote an article about Apple’s iWatch and what it could mean for Apple’s stock price. (Read Will the Apple iWatch Help its Stock Price?)

Apple itself won’t confirm or deny the rumors surrounding these two products. But Apple CEO Tim Cook did recently tell investors that the company was working on “new categories,” essentially confirming that more new products are on the way.

The Next Move for Apple Stock

At this point, investors are aware of Apple’s slide from above $700 per share to just below $420 per share. Since bottoming on March 5th, the stock is up around 6% while the broader NASDAQ average is up only 2%.

I was impressed that Apple stock was up over 2.5% on Friday, the day after Samsung announced the Galaxy S4. This is particularly confusing when you consider that Samsung’s Galaxy phones represent the most direct threat to Apple’s iPhones – and that Apple earns half of its revenue from iPhone.

It would make sense, then, that a new and improved iPhone-killing Galaxy phone would be a major threat to Apple.

But with Apple stock rising the day after the new Galaxy S4 was announced – and on a day that the broader stock market traded lower – it seems that the stock market’s expectations for Apple have been very low.

Investors seem to also think that the Galaxy S4 is not as big a threat to the iPhone as originally feared.

Piper Jaffray analyst and Apple-guru Gene Munster agrees. He noted that the S4 isn’t a new phone concept but rather an improvement to the S3. He compared it to the Apple’s “S” model update to the iPhone 4.

The Bottom Line

While Apple still faces a considerable threat from Samsung in both the smartphone showroom and the courtroom, investor expectations have been unreasonably low for Apple.

Apple’s move higher on a down day for the markets and immediately after a new product release from Samsung suggest to me that the bottom is in for Apple stock.

What do you think about Apple’s iPhone 5 versus Samsung’s S4?  Which company do you think will win the smartphone war?  Join the conversation @ Investor Bistro.

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Nick Gingrow March 18, 2013 at 11:34 am

“Investors seem to also think that the Galaxy S4 is not as big a threat to the iPhone as originally feared.”

I think this is really key. Although Samsung is coming out with some great products, their high end phones (S3, S4, etc.) are about the same price as the iPhone and its very difficult to compete with the level of quality that Apple has in all their mobile products. Add in to that the great app ecosystem and iMessage that the iPhone has, and there are some strong ties to keep people from moving to Android/Samsung. I think the fact that Apples stocked bumped up is just reinforcing the fact that Apple is still king in the mobile world.

Don March 18, 2013 at 1:27 pm

Good observations, Jay. I, too, found AAPL’s price action to be very telling. In the face of the S4 intro, APPL stock puts in a bottom and reverses its downtrend. As I write, it is up another 205 bps today while the market as measured by the SPX is down 25 bps. It appears the near term momentum is with the bulls. In the interest of full disclosure, I own a Samsung S3 and have been very pleased with it. The above video of the S4 doesn’t make me want to run out and upgrade. That said, the smaller screen size on the iPhone 5 is a deal breaker for me. I know the iPhone has many terrific attributes, but once you have become accustomed to the larger screen there is no way to go back. Here’s hoping the 5S gets that bigger window. I also look forward to seeing what the iWatch and/or iTV bring to the table.