Apple Inc. (AAPL) & Google Inc (GOOG): Possible Stagnation in the Smartphone Industry

It seems that the smartphone craze is nearing its end, just like its ancestors in television and personal computers. The problem is that the life span of technology is getting smaller day by day, and makers of tech products desperately need technological advancements in their devices if they want the market to survive a little longer. This is a moment of concern for the mass manufacturers of smartphones because people expect more than just a larger display or waterproof system.

Slow growth in general

Don’t jump to any negative conclusions just yet. By a possible stagnation I mean that things are slowing down, not that things have reached a point of destruction. For instance, Apple Inc. (NASDAQ:AAPL)’s stock is currently trading at a significantly lower price than last year. Only nine months ago, the company’s stock climbed as high as $700 per share, but it is currently trading at $426; this is a whopping 36% decline. Apple Inc. (NASDAQ:AAPL) competitor Samsung is also facing problems, as its revenue growth is down by almost 8% compared to the industry average and its current net margins of 11.5% are also below the industry’s 13.3%.

This indicates that smartphones sales are not growing as expected, and now these tech companies need to come up with solid growth plans.

Lack of innovation

One of the major reasons for this slowdown is that an average consumer is not tech savvy enough to pay attention to the nitty gritty details of minor upgrades in smartphone models. For him, apart from introduction of iOS 6 and a larger display, Apple Inc. (NASDAQ:AAPL) has not offered anything new in the iPhone 5. That is why people choose older devices compared to new ones. As a result, Apple Inc. (NASDAQ:AAPL) needs to come up with something new and more intriguing for its users to improve its sales.

Google operating with a diversified strategy

According to Piper Jaffrey, iOS has 63% of Web surfing market share in the U.S., compared to 28% for Android. Furthermore, on the basis of 80% of sales at AT&T Inc. (NYSE:T) and 50% of sales at Verizon Communications Inc. (NYSE:VZ) in the first quarter of this year, iOS was the most popular smartphone platform among the U.S. consumers.

One of Apple Inc. (NASDAQ:AAPL)’s main rivals in mobile operating systems, Google Inc (NASDAQ:GOOG), is well aware of this fact. That is why it has not limited itself to innovation in its Android smartphone platform. Google is nearing a breakthrough with one of its projects for universal Internet. Project Loon was started by Google Inc (NASDAQ:GOOG) in June this year, with an experimental pilot program in New Zealand. The technology is currently being tested in Christchurch and Canterbury. The company also has pretty strong financials, with a return on equity of 16.3% that is above the industry average of 15.6% and a price-to-earnings ratio of 25.9 compared to the industry average of 29.7.

Samsung’s way out

Samsung is following a completely different approach. Instead of focusing on the development of new and innovative technologies, it avails a technology and then fine tunes it a bit before marketing it extensively with its giant network.

With its strong presence in the underdeveloped Asian markets, Samsung has made it possible for the people of these economies to gain access to a wide range of smartphones at lower prices. The company offers smartphones with varying specifications depending on price, which is something that Apple Inc. (NASDAQ:AAPL) does not offer. Though Apple Inc. (NASDAQ:AAPL) is coming up with a cheaper version of iPhone for these countries, Samsung still gives a lot more by taking a lot less.

Fool’s bottom line

The demand of the hour is for smartphone makers to upgrade their devices with new technology. In the meantime, I think that Samsung with its wide range smartphones and it solid roots in the Asian emerging markets can bear this gap until something revolutionary comes along. Google Inc (NASDAQ:GOOG) is also safe against any sort of downturns as its focus is not just the Android platform. It has a number of amazing projects which will ensure its stability in future.

On the other hand, things are not working out for Apple the way that the company might have planned. Unlike Samsung, Apple does not offer a wide range of smartphones; this is troublesome because you can’t meet the needs of different consumers with a single device. The company needs to diversify or give its customers a good enough reason to buy its products, and that can only be achieved if it comes up with something new in terms of technology. Only then will investors start relying on Apple Inc. (NASDAQ:AAPL) the way they do with Google Inc (NASDAQ:GOOG).

The article Possible Stagnation in the Smartphone Industry originally appeared on Fool.com and is written by usman iftikhar.

usman iftikhar has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG). usman is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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