If Anyone's Taking Down Apple, It's Samsung

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If it's possible to fly under the radar, while earning $8.3 billion in operating profit a quarter, the Galaxy maker's doing it.

Much is made of Apple's (NAS: AAPL) dominance in the smartphone market, and for good reason. Here in the U.S., significant competitors -- including Google (NAS: GOOG) with its Nexus phone and Android OS, Microsoft (NAS: MSFT) and the new Windows Phone 8, along with smaller players Nokia (NYS: NOK) and Research In Motion (NAS: RIMM)  -- are all looking up at Apple.

New iPhones, iPads, and other iGoodies, are introduced with huge fanfare, and even more importantly for Apple shareholders, huge sales -- domestically. A funny thing happened today, though. Samsung, a world leader in appliance and TV sales, displays, and, of course, mobile phones, announced sales and earnings results, and the domestic smartphone industry would be wise to take notice.


Samsung's Q4 specs
As is the norm for Korean-based Samsung, today's earnings announcement is "guidance," rather than hard-and-fast numbers. With that said, Samsung's jump in operating profit in Q4, to an estimated $8.3 billion, was an 89% increase compared to its year-ago quarter. What's driving all that growth? Smartphone and tablet sales, along with a few TV's, appliances, and Samsung's display division, have been going gangbusters.

Though total mobile phone sales results for 2012 have yet to be released, if Q3 numbers are any indication, Samsung will end the year somewhere around 375 million units sold, give or take. Those are impressive results, in and of themselves. What makes Samsung's phone sales disconcerting for Apple, Google, Microsoft, Nokia, and RIM fans is that Samsung sold a whopping 55 million smartphones in Q3 alone. In other words, about two-thirds of Samsung phone sales are of the smartphone variety -- right in Apple's wheelhouse.

Apple introduced its new iPhone 5 heading into Q4, several months after Samsung's Galaxy III. With the usual run on Apple products at launch, it's notable Samsung is still sitting on a comfortable lead. How? Samsung is not only a diversified electronics product company, it's geographically diverse as well. For the first half of 2012, Samsung 's U.S. smartphone sales amounted to a mere 12% of its total; the balance of smartphone units sold were derived from Europe, Asia, and the Pacific regions.

The impact on Apple
Growth for a publicly traded company isn't a nicety -- it's a necessity. Fools know this. Beginning in Q3 of last year, it has been a concern as to where Apple will find growth going forward. An iPhone 6, perhaps? The problem for Apple is that unveiling its latest smartphone has been the modus operandi for years -- build another smartphone, and people will come.

But with nearly half its revenues, and two-thirds of its earnings, coming from smartphone sales, Apple has a whole lot of eggs in one, big basket. Apple's growth, and its return to the lofty $700-a-share range shareholders enjoyed last year, relies on international expansion of its smartphone sales. Analysts, iFanatics, and industry insiders can talk about an iTV all they want, but even there Apple's late. Google, like Samsung, is introducing its Android OS TV at the CES tech conference in Vegas.

And speaking of CES, Samsung announced it's rolling out the ATIV Odyssey domestically in the next several weeks, its first smartphone foray using Microsoft's Windows 8 OS. Plans are for Verizon to offer Samsung's first Windows 8 phone, with Sprint getting on board by this summer, adding even more non-Apple alternatives for U.S. smartphone consumers.

What's an Apple to do?
As the smartphone market, particularly domestically, becomes increasingly mature, there is even more pressure being put on Apple to perform. How to keep those stellar smartphone-related profit margins, once the envy of manufacturers everywhere, while more and more pressure is being applied by other smartphone players? Just as with Samsung, the answer lies internationally.

Apple will continue to sell iPhones here in the U.S. -- it's difficult to see that slowing anytime soon. But maintaining the status quo isn't what made Apple a shareholder's dream these past several years. Rather, its explosive sales results have. Apple CEO Tim Cook clearly understands the need for international expansion, as today's second trip to China in 10 months will attest. As the largest market in the world for smartphones and computers, the near-doubling of Apple's Chinese retail outlets to 11 from just six less than a year ago is certainly a step in the right direction.

The days of Apple sitting back and watching the sales and earnings roll in uncontested are over; Google, Microsoft, and especially Samsung have seen to that. Will Apple ever become the $1,000-a-share stock many were touting just months ago? Only if Cook can lead Apple there.

The article If Anyone's Taking Down Apple, It's Samsung originally appeared on Fool.com.

Fool contributor Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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