Samsung Electronics Co (Seoul, South Korea) overtook Apple Inc (Cupertino, Calif., U.S.A.) as the world's top smartphone maker in the July-September period with a 44% jump in shipments, and forecast strong sales in the current quarter in a clear warning to its rivals.
Samsung only entered the smartphone market in earnest last year, but its sales have skyrocketed thanks to a sleek production system that rapidly brings new products to market. Apple introduced its first iPhone in 2007.
"In the handset division, Samsung has no real rival models to challenge its products except for the iPhone 4S. Apple and Samsung will continue to dominate the market in the fourth quarter," says Kim Hyun-joong, a fund manager at Midas Asset Management, which owns Samsung shares.
Profits from the South Korean firm's telecoms division, announced on Friday, more than doubled from a year ago to a record $2.2 billion and accounted for 60% of Samsung's total profit, offsetting a plunge in earnings from its bread-and-butter memory chips.
Shipments of smartphones jumped 44% from the preceding quarter to 27.8 million units, up nearly four times from a year ago, according to research firm Strategy Analytics.
Apple's iPhone sales shrank by 16% to 17.1 million units in the third quarter. Samsung had 23.8% of the global smartphone market in the third quarter, 9 points higher than Apple. Samsung's flagship Galaxy line of products is powered by Google's Android software.
Apple sold fewer phones in the third quarter, missing street expectations for the first time in years, as customers held off buying iPhones until the October launch of the latest version.
Samsung reported a $3.8 billion operating profit for the July-September quarter, broadly in line with its earlier estimate. That was down from $4.4 billion a year ago but up from $3.4 billion in the preceding quarter.
Samsung said its fourth-quarter earnings could be better than the third, boosted by one-off gains from its $1.4 billion sale of its hard disk drive business to Seagate Technology .
"I am cautiously optimistic on the fourth quarter outlook at this point," says Robert Yi, head of Samsung's investor relations.
"Looking ahead into the fourth quarter, when industry demand is traditionally at its peak, Samsung expects sales of mobile devices to remain strong and flat-panel TV shipments to increase," the company added in an earnings statement.
Apple, whose iPhone sales account for nearly half the firm's total sales, reported a 40% gross margin, or the percentage of sales left after subtracting the cost of goods sold. Samsung's phone division reported a 16.9% operating margin, which further takes account of marketing costs.
Nevertheless, Samsung faces challenges as the new iPhone introduced earlier this month is notching up strong sales.
According to Juniper Research (Hampshire, England), with Apple’s iPhone 4S selling 4 million in the first three days, Samsung will have to pull-out all the stops to keep the company from re-taking top spot.
“While the 4S is essentially an iPhone 4 with hardware upgrades, Siri is going to be a killer app for Apple,” says Daniel Ashdown, research analyst with Juniper Research. “And the continuation of the iPhone 4 and 3GS in effect positions the company’s handsets at a range of price points, without losing their premium image.”
Samsung may not have come up with the concept, but it has adopted Apple's breakthrough smartphone idea perhaps better than any other handset maker. It tries to offer the Apple experience at a better price with better functionality.
"Samsung's rise has been driven by a blend of elegant hardware designs, popular Android services, memorable sub-brands and extensive global distribution," says Alex Spektor at Strategy Analytics.
"Samsung has demonstrated that it is possible, at least in the short term, to differentiate and grow by using the Android ecosystem."
(Additional reporting by Ju-min Park and Jungyoun Park; Editing by Jonathan Hopfner, Miyoung Kim and Dean Yates)
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