The smartphone market is still growing strong in 2014. In the
second quarter, unit sales increased 23% to 295.3 million.
Although most of that growth is coming from low-end devices
sold in emerging markets,
-- a company that makes exclusively high-end devices -- was able
to increase iPhone sales 12.7% last quarter. Still not as much as
the overall market, but enough to maintain nearly 12% market
, which sells smartphones at nearly every price point, saw its
smartphone sales fall 3.9% year over year. As a result, its
market share declined to 25.2% from 32.3%.
So, why is Apple able to sell more high-end smartphones
despite most of the growth supposedly coming from low-end
devices? And if Samsung is making low-end and mid-range devices,
the prime areas of market growth, why aren't its sales
Apple makes really good phones
The simple reason Apple is selling more smartphones is because it
makes the best smartphones. The latest iPhone is consistently
ranked as the best smartphone by critics, while Samsung's Galaxy
S models have started falling from the No. 2 spot over the last
While it's one thing to make really good phones, it's another
to make really good phones that people want. Smartphones are just
as much a fashion as they are a utility, and Apple's brand is
The appeal of Apple is evidenced in its 41.9% share of U.S.
smartphone subscribers. That number has continued to climb in a
market that many consider already saturated on the high end.
Smartphones accounted for 70% of the mobile market as of the end
Most people who can afford an iPhone will buy an iPhone.
That's even true in China, where about
80% of smartphones sold for more than $500 are
. For everyone else, price is one of the biggest differentiating
factors when making a decision regarding which smartphone to
Samsung is in a race to the bottom, and it's
Samsung is one of two smartphone makers that actually turns a
significant profit selling hardware. The other is Apple. But
Samsung is seeing its sales decline largely due to the fact that
it still thinks it should be able to earn a nice profit on its
handsets while its competitors are willing to settle for
The landscape of Android phone makers is much different than
just a couple years ago. Samsung no longer makes the best Android
phones, and Chinese OEMs are selling phones comparable to
Samsung's high-end devices for half the price. With Android
limiting Samsung's ability to differentiate its products through
software, and Chinese manufacturers able to quickly clone
Samsung's hardware capabilities, Samsung is in a race to the
Chinese OEMs have come on strong over the last couple years.
Huawei has ascended to the third-largest smartphone OEM since
launching its consumer business in 2011. Xiaomi is now the
fifth-largest. Lenovo, after acquiring Motorola Mobile, is in
These companies are dominating Samsung in the mid-range and
low-end, and they're still just getting started. Huawei recently
announced plans to shift its focus to more consumer-facing
products. Xiaomi plans to expand to South America and Europe in
the near future. And Lenovo has yet to fully capitalize on its
recent acquisition of Motorola Mobile.
All is not lost for Samsung. It's actually well-positioned to
win among those companies racing to the bottom.
Fool contributor Ashraf Eassa notes
Samsung has the advantages of economies of scale, vertical
integration, and a well-known brand. Ashraf goes on to say,
however, that if Samsung wants to stabilize its margins, it needs
to find a way to differentiate itself like Apple does. Despite
several efforts to differentiate its smartphones, Samsung has
Differentiation leads to success
Apple's iPhone differentiates itself through its OS, its unique
hardware capabilities, its retail experience, and its brand. Most
Samsung phones are differentiated from their competitors on
price, and Samsung isn't on the good side of that equation.
Samsung is losing sales to Apple on the high end, and it's losing
to the Chinese OEMs on the low end. It still dominates the
market, but if it doesn't change course, it won't be long until
another Android OEM leapfrogs it.
Meanwhile, Apple will continue to chug along, slowly gaining
sales as soon as people can afford it. And once someone buys an
iPhone, as most of you know, they usually keep buying
More from The Motley Fool:
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The Simple Reason Samsung Smartphones Can't
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originally appeared on Fool.com.
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