Company Review & Analysis: Apple vs. Samsung

Company overview

Today, the South Korean company Samsung founded in 1938 is a huge group of several dozen companies. In particular, Samsung Electronics is an international manufacturer of electronics: semiconductor, telecommunication equipment, memory chips, liquid crystal displays, mobile phones and monitors. Samsung’s first mobile phone was developed in 1991, and the first smartphone in 1999 (Samsung Official Website, 2016). Year after year, Samsung is expanding its presence in the global market, holding the leadership in selling cellular phones and television sets. Thus, in 2007 Samsung Electronics, having outrun the US company Motorola, became the world’s second biggest manufacturer of mobile phones, and in 2011 Samsung managed to reach the number of 300 million sold mobile phones in one year, which previously only the leader of the market, Nokia, could accomplish (Samsung Official Website, 2016). Based on forecasts by Fortune, Samsung today holds leadership in the smartphone market with 25% share (ElmerDeWitt, 2016, Figure 1). The company’s most direct competitor is the American corporation Apple Inc. (market share – 17.5%, Figure 1), one of the pioneers in the field of personal and tablet computers, audio players, and software.

Indeed, it should, above of all, be marked that Apple was not initially engaged in the production of mobile phones and other consumer electronics. It is the company that created the world’s first personal computer for commercial purposes – it happened back in 1976. Up until 2006, its main products were PC with the Macintosh operating system. Then, in 2007, the market saw, perhaps, the most important creation of Steven Jobs, who made a real revolution in the market of mobile devices, – iPhone. At the time, the mobile device market in the United States and the world in general was quite small, though fast growing, and the Finnish company Nokia held primacy in it (Kane, 2014). As a result, over 5 years of existence (2007 to 2012) iPhone alone brought Apple a profit of more than 150 billion dollars. To this day, iPhone remains the company’s main product that accounts for over 65% of revenue (Apple Inc. Official Website, 2016; Kane, 2014).

In general, through its innovative technology and aesthetic design, Apple created a unique reputation comparable to a cult in the consumer electronics industry. Apple brand has been repeatedly recognized as the most expensive brand in the world; the company is also ranked first in the world by market capitalization, the amount of which, as of January 11, 2016 was 537 billion US dollars (Apple Inc. Official Website, 2016; ElmerDeWitt, 2016).

The analysis of performance excellence

Mobile phone market and competitive position

Obviously, the two companies, Apple and Samsung, confidently hold the leadership in this market. In sum, the total market share of these companies in the global smartphone market from year to year is nearly 50% (Figure 1). The rest positions in the top five are taken by Chinese manufacturers. The third place belongs to Huawei Company, which in the last quarter of 2015 increased its share from 7.5% to 8.4%. It is followed by Xiaomi, whose share within the quarter decreased from 5.9% to 5.6%. The fifth place is taken by Lenovo, which in the quarter managed to increase its market share from 5.2% to 5.4%. In general, of the total number of gadgets 42% is accounted to China-made devices (ElmerDeWitt, 2016, Figure 1).

Thus, for instance, over the last year Huawei delinked its mass production from the parent brand, effectively worked on lifting the brand prestige and got a lucrative contract for production of the new Nexus on Google’s order. The prices of most models graded up to, and sometimes even rose higher than those of the old-timers, such as Samsung or LG. Similarly, Lenovo is torn between competition with small Chinese brands at home and personal ambitions to break into the premium class along with attempts to make profitable its American offshoot Motorola (Deloitte, 2015; GfK, 2015; ElmerDeWitt, 2016).

Figure 1. Mobile Phone Market Share, 2014-2016(estimated)

Source: ElmerDeWitt, 2016.

After the tip of the iceberg, the top looks as follows: LG – 5.3%, TCL (Alcatel) – 4%, Oppo – 3.8%, BBK (Vivo) – 3.3%, ZTE – 3.1%, Sony – 2.0%, Microsoft – 1.7%, Meizu – 1.7%, Coolpad – 1.5%, ASUS – 1.4% (ElmerDeWitt, 2016; Figure 1). This curious list demonstrates the precarious position of the mobile business of Sony and Microsoft – both companies are investing into loss-making business for themselves and, unlike the chin-up ASUS, do not feel optimistic about it. The Japanese are the most anxious about their fate – Sony still cannot decide whether to keep the mobile unit alive or close it as unprofitable (Deloitte, 2015; GfK, 2015; Chun-Mei et al., 2016).

In general, over 2015 alone, the market of smartphones will increase by 9.3%, while in 2016 the expected growth makes 7.7% (Deloitte, 2015). The growth slowdown is associated with the difficulties in the global economy and the saturation of mature markets, so the main competition takes place in emerging markets (Deloitte, 2015; GfK, 2015; GfK Press Release, 2015). Here, if Apple in its conservatism has acquired a huge range of customers and is constantly gaining popularity, Samsung recently has only been watching its market share “bitten” by the Chinese budget brands and its flagship models gradually losing sales dynamics (ElmerDeWitt, 2016; Chun-Mei et al., 2016; CCS Insight Report, 2014).

Factors of consumer choice: strengths, weaknesses, and strategic challenges.

Currently, Samsung remains the unquestionable market leader despite the reduction in the market share from 27.8% in 2014 to 24.8% in 2015 (ElmerDeWitt, 2016). The main competitive advantage of the South Korean company is the production of smartphones based on the open and free Android operating system. The company produces a wide range of feature phones and smartphones, which allows it vary price and design for the consumer. Samsung has in its range simple and inexpensive devices for the mass market, as well as very powerful and innovative smartphones for the more affluent segments of the population (CCS Insight Report, 2014; Chun-Mei et al., 2016; Chang et al., 2013). Accessibility allows the company to sell its products to the wider community, which provides large market coverage, even against the background of a global trend of downward in demand for expensive smartphones.

In this regard, Apple sticks to the company’s old slogan “Think Different”. For many years, the company’s products have been used exclusively for working with graphic resources by the people involved in the arts (Kane, 2014). This was the reason for elaborated details of external and internal architecture and the extremely recognizable design of Apple. Due to thorough development of all components and introduction of patented innovations, Apple with weaker hardware achieves very high performance of its devices, even in comparison with the powerful Samsung devices. For example, Apple in its latest models uses the Retina display whereby even in multiple zooming in of an image pixels are not visible. In terms of resolution and size, the iPhone displays are inferior to their competitors, but due to the Retina display they often look better than widescreen HD displays (Chun-Mei et al., 2016; Chang et al., 2013). As a result, despite the extremely limited range, Apple’s iPhone are frequently several times more expensive than their counterparts from other companies, due to which the company loses a significant market share relying only on the wealthy consumers and numerous fans of the brand (CCS Insight Report, 2014; Chun-Mei et al., 2016). At the same time, according to Consumer Intelligence Research Partners, Apple products users have a higher income, are younger and better educated than their opponents from the Samsung camp (Yarow, 2013, Figure 2).

Figure 2. Apple vs. Samsung Smartphone Consumers

Overall, iPhone in the world is considered not just a mobile device but the luxury emphasizing the status of its owner. Looking at the entire history of products released by Apple, one can notice that having a less successful pricing policy Apple has won the competition due to the attitude to the consumer. In confirmation of this fact, Apple’s iPhone won the user satisfaction survey by JD Power and Associates customer satisfaction awards nine times in a row (Kane, 2014), while Samsung phones after a year of using gives its clients only 50% satisfaction, though the average smartphone service life makes 2-3 years (Saardchom, 2014). Therefore, Samsung releases new smartphones so often that this allows users to change smartphones in less than a year. The company is thus able to track consumer preferences and get closer to the creation of a phone that would fully satisfy the target audience with each new model released. In turn, Apple releases its smartphones approximately once a year with the trend of a reduction in time between releases. On the one hand, it helps the company to reduce its costs and sustain the demand for its product. But it seems that in general, Apple becomes less arrogant and does not rely merely on the consumer loyalty, and tries today to be more flexible and respond quickly to market demands rather than adjusting it to itself. Meanwhile, the differences in product introduction cycle in Apple and Samsung significantly complicate an objective evaluation of the sales results.

In general, both companies are extremely popular among consumers each having specific advantages: Samsung has the open system, and Apple has its high reliability and security. On the other hand, Android developer community recently has been customizing their chosen platform to achieve the benchmark standard of Apple ecosystem. For example, recent user experience research by Sangwon et al. (2015) confirms that the latest Samsung Galaxy models compete with the iPhone as equals, and in some aspects, we can say Samsung even outperforms the competitor. For instance, while previously Samsung was more known for disputes on infringement of Apple patent rights (Saardchom, 2014; Chang et al., 2013), now the company is actively developing its own technology, for example, the AMOLED technology, which led to the creation of the best mobile display in the market installed in the Galaxy Note 4. Apart from having a strong flagship, Koreans have a significant advantage over Apple in the emerging markets, namely in China and India (GfK Press Release, 2015). This means that we can expect Samsung to continue, as before, taking a slice of Apple pie and retain its customer base, despite the underhand plotting of other manufacturers of Android-smartphones, especially Chinese ones.

Operational results and organizational sustainability

At the same time, despite the risk of losing the market share in 2016, Apple continues to profit from the iPhone more than all competitors combined. Thus, according to the Wall Street Journal, with the fact that the iPhone’s market share in 2015 amounted to just over 17%, Apple got 91% of the global revenues from the sales of smartphones (Ovide & Wakabayashi, 2015). As expected, the second place by a large margin belongs to Samsung Company, which got 14% of the world total revenue having a 25% share. It should be noted that the picture is complemented by other manufacturers, which by the results of 2015 showed negative or zero profit figures (Ovide & Wakabayashi, 2015; Figure 3).

Figure 3. Market and profit share, 2015.

Source: Ovide & Wakabayashi, 2015.

In general, over the past fiscal year, Apple’s revenue grew by 25% to more than 180 billion dollars with the net profit reaching 39.5 billion dollars, and net margin exceeding 20%. Moreover, the company’s assets exceed total liabilities by almost 5 times (Apple Inc. Official Website, 2016). By the way, Apple has greater liquidity reserves than the US government (100 billion against 80 billion dollars) (Deloitte, 2015). Furthermore, in a company where quality is one of the main priorities, R&D costs have the most significant in-house share. In 2015 fiscal year, Apple increased its capital expenditure by 61% up to 10.5 billion dollars (Apple Inc. Official Website, 2016). The company does not stint in the costs associated with debugging of production processes – since 2008 they have grown tenfold. In particular, in 2012 Apple tightened the requirements for compliance with the technological process and the necessary level of performance in order to ensure the required supply amounts of the proper quality (Kane, 2014). In addition, Apple representatives started much more frequently carrying out checks without warning in all departments without exception, including places never before inspected. The company is currently actively investing in new production technologies – milling machines, test stands of its own design, and lasers. Apple has resorted to the introduction of the latest achievements of science and technology previously used only in the aerospace and defense industries (Vuori & Huy, 2016; Kane, 2014; Chun-Mei et al., 2016).

In turn, Samsung, with large sales volumes, high wholesale prices and strict cost control, inherited the title of the largest manufacturer of mobile phones, and Apple is now under serious pressure (Figure 4). By the end of the third quarter of 2015 the operating profit of Samsung (Official Website, 2016) increased by 82% compared with that of last year, reaching 6.42 billion dollars. Net income increased by 28% to 4.6 billion dollars. Overall, Samsung Electronics finished the third quarter of 2015 with a solid revenue of 45.6 billion dollars, which is 9% more than last year’s indicators. Meanwhile, the operating profit of Samsung division engaged in development and sale of smartphones and tablets in annual terms rose by 37%, although this increase is largely determined by the failed last year period (Samsung Official Website, 2016). It is worth noting though that the Samsung Company’s management system was influenced by the American and Japanese systems and absorbed the best of them. Japanese products are of high quality, and the American management model is outstanding in terms of sales and customer communication. The Korean model is a kind of middle ground and combines a high level of product quality and a well-developed sales system. The company Samsung itself is one of the oldest chaebols, therefore the traditions of quality have been known there for a long time (Vuori & Huy, 2016; Chang et al., 2013). Thus, the planned capital expenditures of Samsung for 2015 were the largest in the world and made 22 billion dollars (Samsung Official Website, 2016).

Thus, one cannot say that some company greatly outperforms the other in terms of the success of measures applied regarding the crucial factor of demand. Both companies demonstrate a very high standard of product and operational efficiency, however, Samsung spends four times more money on advertising its products than Apple does (Chun-Mei et al., 2016). Samsung Company as a whole is less original in its promotions than Apple, however, it known for its aggressive policy of penetration. Having a unified concept for the whole world, the company takes into account national peculiarities of each territory in which the advertisement will be distributed, and actively engages in promoting local celebrities. Also Samsung advertising is often a viral response to Apple’s new products. For example, once the company made an ad asking consumers why they stand in long queues for iPhones when they can buy the Samsung Galaxy for less money. Massive advertising is sometimes intrusive but it does its job: even the most ordinary Korean phone is well heard of, which justifies the marketing investments, and which is especially important in light of the slowdown in the dynamics of sales in recent years. Being at risk of being displaced by new producers like OnePlus, Xiaomi and Meizu, the Korean company does not know how to save the situation, but just in case carries out mass layoffs, and even has replaced the director of the mobile unit (Vuori & Huy, 2016). This introduces some uncertainty in the future activities of the company, in spite of its decision to apply the method of structural diagnostics.

In turn, Apple continues to use the concept of high expectations from the product release. Keeping the innovation secret, the company regularly stirs consumer’s interest to the product and thereby maintaining the image of the uniqueness of the brand. In addition, the organizational structure provides support of the company’s strategy: Apple’s matrix structure affects all structural units of the corporation from the higher echelons to ordinary sellers at points of sale in stores. In particular, the company cultivates its own values through the Apple University, where employees are taught how to make corporate solutions on the examples based on both Apple’s own experience and global precedents (Kane, 2014). In contrast, to reduce costs as a result of trial and error, and take advantage of the experience and knowledge of employees, Samsung has always tried to hire initially only the most qualified employees (Vuori & Huy, 2016).

Despite their differences (Figure 4), the two strategies make explicit focus on integration and efficiency due to the talented staff and organizational capacity, which opens up great prospects for the companies in the development and accumulation of know-how.

Figure 4. SWOT–analysis: Apple vs. Samsung

APPLE SAMSUNG
Strengths Opportunities Strengths
Expert in the development of own softwareHigh brand value, brand and design awarenessFocused R&D results in the high performance of devicesProtected internal architectureHigh customer loyalty Expanding product rangeImproving new products presentationIntroducing innovationsRising demand for cloud services and accompanying applications Best practices in design and manufacture of components and consumer electronicsEquipment integration with various OS, open and free OSWide range of products in terms of design and priceLow production costsLargest market shareSales growth in the smartphone market of developing countries
Weaknesses Threats Weaknesses
Regular patent infringements and information leaksShort product lifecycleMost part of revenue depends on launching new products and servicesClosed OSHigh cost, especially for consumers in emerging markets Strong competition from Chinese manufacturersPrice warsIntroduction of powerful substitute productsEmergence of viruses, hacking systemsDeclining purchasing powerDeclining fan base Low profitabilityLack of own OS and softwareFocusing on too many product typesSaturated smartphone market in developed countriesRapid technological changeShort product lifecycleLarge share of dissatisfied customers a year after purchase

Market opportunities and Recommendations

Overall, neither in the short nor in the long-term perspective is there a risk of significant decline in the relevance of both company’s products, especially in terms of producing smartphones (Deloitte, 2015; GfK, 2015). Generally, smartphones have already crossed 65% mark in sales and displaced feature phones from the market; and by 2017, smartphones will take up to 82% of the total number of phones sold with 30% of sales made in China (GfK, 2015; GfK Press Release, 2015). According to forecasts of mobile devices market analysts, the smartphone market growth is driven by the emergence of entry level smartphones from international brands and “no-name” suppliers from emerging markets. The cost-cutting trend will continue, encouraging first-time smartphone buyers do it earlier (Deloitte, 2015; GfK, 2015; Vuori & Huy, 2016). This trend will make up the compound annual growth rate, which will reach 21% (GfK Press Release, 2015).

Analyzing the statistics, it becomes obvious that such indicators make the market of smartphones, especially those available to the mass consumer, an extremely profitable business. Thus, Android has already won 80% of the market (ElmerDeWitt, 2016). With this trend of market development, Apple, as the manufacturer of high-end devices, will have to think over the change of its business model, as soon as its growth makes only half of the growth of market leaders and it opted not to release budget phones on the market. Considering that the market growth is focused on entry-level devices, there is a risk of simply giving up the developing markets to Android, while winning them back will not be easy, as when these markets become mature, smartphone owners will become attached to the Google/Android ecosystem. In this perspective, the company may consider the strategy of creating a separate brand, with its own history of creation, not related device specifications, models and reputation built from scratch (like ZTE’s Nubia or Fly’s Wileyfox).

Besides, in the upcoming decade, technological opportunities will include longer lasting batteries, flexible displays, as well as further development of cloud services and accompanying applications (GfK, 2015; GfK Press Release, 2015; Kim et al., 2016; Sangwon et al., 2015). For instance, already today, Apple’s revenue from the AppStore services exceeds $2.5 billion annually, while Google Play traditionally earns at least twice less (GfK, 2015). The architectural potential here is truly vast, but this will require significant security innovations from both Android and Samsung. And yet, most of the technological advances could be easily copied by competitors, and therefore both companies should better focus on guaranteeing customer satisfaction and conquering developing markets like China, India, Africa, and Latin America.

References:

Apple Inc. Official Website. (2016). Financial Information. Accessed from http://investor.apple.com/financials.cfm.

CCS Insight Report (2014). Global Smartphone Market Analysis and Outlook: Disruption in a Changing Market. PDF. http://www.lenovo.com/transactions/pdf/CCS-Insight-Smartphone-Market-Analysis-Full-Report-07-2014.pdf

Chang, Young Joong, C., Jaibeom, K., & Jaewoo, J. (2013). An Exploratory Study on the Evolution of Design Thinking: Comparison of Apple and Samsung. Design Management Journal, 8(1), pp. 22-34.

Chun-Mei, C., & Bao-Yi, A. (2016). Efficiencies vs. importance-performance analysis for the leading smartphone brands of Apple, Samsung and HTC. Total Quality Management & Business Excellence, 27(3-4), pp. 227-249.

Deloitte. (2015). Technology, Media & Telecommunications Predictions 2015. PDF. http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Technology-Media-Telecommunications/gx-tmt-pred15-full-report.pdf

ElmerDeWitt, P. (2016). How Apple Sucks the Profit Out of Mobile Phones. Fortune Online. Accessed from http://fortune.com/tag/market-share/

GfK. (2015). Four key trends in the global smartphone market. PDF. Accessed fromhttp://www.gdsinternational.com/events/ngretail/eu/wp-content/uploads/sites/28/2015/09/NGR-EU-12-GFK-Four_key_trends_in_the_global_smartphone_market.pdf

GfK Press Release (2015, Nov 15). GfK forecasts global smartphone demand to increase. PDF. https://www.gfk.com/fileadmin/user_upload/dyna_content/Global/documents/Press_Releases/2015/20151125_gfk_quarterly_smartphone_release_vfinal.pdf

Kane, Y.I. (2014). Haunted Empire: Apple After Steve Jobs. HarperBusiness.

Kim, K., et al. (2016). Understanding users’ continuance intention toward smartphone augmented reality applications. Information Development, 32(2), pp. 161-174.

Ovide, S., & Wakabayashi, D. (2015). Apple’s Share of Smartphone Industry’s Profits Soars up to 92%. The Wall Street Journal Online. Accessed from http://www.wsj.com/articles/apples-share-of-smartphone-industrys-profits-soars-to-92-1436727458

Saardchom, N. (2014). Design Patent War: Apple versus Samsung. South Asian Journal of Business and Management Cases, 3(2), pp. 221-228.

Samsung Official Website. (2016). Financial Information. Accessed from http://www.samsung.com/us/aboutsamsung/investor_relations/financial_information/earnings_release.html

Sangwon, L., Min‐Jeong, K., Jonghun, P., & Dongmin, S. (2015). Design Strategies for Idle Screens of Smartphones Based on Service Usages. Human Factors and Ergonomics in Manufacturing & Service Industries, 25(4), pp. 409-427.

Vuori, T.O., & Huy, Q. (2016). Distributed Attention and Shared Emotions in the Innovation Process: How Nokia Lost the Smartphone Battle. Administrative Science Quarterly, 61(1), pp. 9-51.

Yarow, J. (2013). CHART OF THE DAY: iPhone Buyers Are Younger, Richer, And Better Educated Than Samsung Smartphone Buyers. Business Insider Online, Aug 19. Accessed from http://www.businessinsider.com/chart-of-the-day-iphone-buyers-versus-samsung-smartphone-buyers-2013-8

The terms offer and acceptance. (2016, May 17). Retrieved from

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"The terms offer and acceptance." freeessays.club, 17 May 2016.

[Accessed: December 10, 2022]

freeessays.club (2016) The terms offer and acceptance [Online].
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"The terms offer and acceptance." freeessays.club, 17 May 2016

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"The terms offer and acceptance." freeessays.club, 17 May 2016

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"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: December 10, 2022]

"The terms offer and acceptance." freeessays.club, 17 May 2016

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