Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Why Apple Inc. (AAPL) Should be Concerned About Samsung’s Sluggish S4 Sales

Page 1 of 2

Samsung shares slipped 6% on Friday. An analyst at JPMorgan noted that demand for the company’s flagship phone, the Galaxy S4, appears to have dropped dramatically.

Compared to its predecessor, the Galaxy S4 had a fairly robust launch. But now, sales appear to be slowing. Apple Inc. (NASDAQ:AAPL) saw a similar phenomenon play out last fall, when analysts raised concerns that the company’s iPhone 5 was failing to sell as well as expected.

Apple Inc. (NASDAQ:AAPL)

This seems to suggest that the high-end smartphone market has been saturated, and that incremental upgrades will fail to drive sales. That should concern investors in any company that’s particularly exposed to the market.

The high-end smartphone market has been saturated

The smartphone market has seen very little innovation since June 2010. That month marked the release of the iPhone 4 — a phone that’s still sold today, and one that’s quite capable.

Phones have gotten a little bigger, a little faster. Cameras are slightly better quality. And 4G is available for those with carriers that offer it in their area.

But for the most part, innovation has stalled. US smartphone penetration passed 50% last October. Going forward, the rate of adoption may be expected to slow, and will likely never reach 100% — there is a segment of the population (some seniors, for example) that has no interest in smartphones.

At this point, those who have not upgraded to a smartphone have likely done so for reasons of cost — without carrier subsidy, high-end smartphones can run at $700 plus. This is particularly problematic for consumers in the developing world.

Older phones should eventually filter down to these budget consumers, and there’s even talk that Apple Inc. (NASDAQ:AAPL) could unveil a cheap iPhone. But at the low-end of the market, the profit margins aren’t nearly as great. In fact, Samsung’s budget smartphones may be sold with a margin of only 1%.

Apple’s exposure to the smartphone market

Apple Inc. (NASDAQ:AAPL) has a number of different products — Macs, Macbooks, iPads, etc.

But when you actually take a look at the company’s financials, one product completely dwarfs the rest. As of the company’s last 10K filing, the iPhone accounts for more than half of the company’s revenue, and the vast majority of its profit.

Moreover, it’s been the biggest driver of Apple’s growth. From 2011 to 2012, iPhone revenue grew 71%, much more than any other segment.

To be fair, on a comparative basis, the iPad dwarfs Apple Inc. (NASDAQ:AAPL)’s other products in terms of revenue, and Apple’s management continues to talk-up the iPad as the real future of the company (Tim Cook called tablets the mother of all markets in February, and hinted that they could one day replace many other types of computers.)

But for now at least, Apple Inc. (NASDAQ:AAPL) is very much an iPhone company.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!