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The global smartphone market has peaked, with second-quarter shipments declining year-over-year (YoY) by 2.3%, a decline shared across most of the top vendors in the market.
Leading smartphone manufacturers are responding in different ways: For example, Apple is moving further into wearables and other peripheral devices, while Samsung is leaning on its memory business. Both companies reported earnings this week, providing a look at how these strategies are faring.
- In Apple’s fiscal Q3 (ended June 29, 2019), revenue from iPhone sales dropped 12% YoY, but its wearables business grew 49% YoY. The increase in wearables revenue to $5.5 billion — driven by Apple Watch and AirPods sales — doesn’t make up for the decline to $53.8 billion in mobile phone revenue. But if wearables revenue continues this growth, it could fully offset that difference in the future, especially combined with growth in Apple’s other auxiliary revenue channels like services.
- Samsung’s revenue for Q2 (ended June 30, 2019) fell 4% YoY, with its mobile business exhibiting tepid 7% growth. The company’s global mobile phone sales increased slightly, especially in its midtier and budget phone segments, though its flagship devices were subject to stagnant demand, leading to lower profits YoY. But Samsung’s semiconductor business saw sales drop 15% YoY, with an even bigger 34% drop in its memory segment, which has been a massive driver of revenue and profit in recent years. The drop was due largely to the wider decline in the global market for mobile devices.
The bigger picture: Apple’s survival strategy in the peak smartphone age is focused on internally driven growth, while Samsung is pegging its fortunes to the wider mobile market.
Apple’s business is as a purveyor of its own products and the services that are delivered through them. The company is bringing its existing base of loyal customers even further into its ecosystem, selling iPhone users other devices like iPads, AirPods, and Apple Watches, as well as getting them to subscribe to things like news services.
That gives Apple a limited long-term ceiling for its growth: The overall population of potential customers isn’t increasing greatly thanks to the strategy of deepening its current population. But it also means that Apple will succeed or fail based on its own products, rather than being subject to the moves of others.
On the other hand, Samsung’s strategy for continued success is dependent upon the continued growth of the mobile market and the performance of the companies that it supplies. Nearly half of Samsung’s quarterly revenue is dependent on its role as a supplier for the computing market.
Its semiconductor business doesn’t just supply chips and memory for its own phones, but also for those of competitors including LG and Sony. As those companies ship fewer phones each quarter, Samsung’s revenue can fall too.
This dependency gives Samsung a higher ceiling for potential growth, as it’s not dependent solely on its own devices. But it also allows for greater variability and the potential for disaster should Samsung’s apparent belief in the mobile market’s potential to grow further in the next few years turn out to be inaccurate.
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- AirPods have become a millennial status symbol, and Apple’s earnings suggest they could be its next big thing after the iPhone
- Apple’s third quarter profit was weighed down by an overlooked cost — it’s now devoting more of its sales to R&D than at any time since it released the iPod
- Sales of Apple’s wearables, home, and accessories products are now almost as big as the Mac business, showing that the Apple Watch and AirPods are big hits