Saying that Apple Inc. (NASDAQ:AAPL) and SAMSUNG ELECT LTD(F) (OTCMKTS:SSNLF) jointly dominate the global smartphone market is like saying the sun is hot.
They earn 100% of the smartphone industry profits, according to research firm Canaccord Genuity. While Apple Inc. (NASDAQ:AAPL) earned 57% of worldwide smartphone profits in the first quarter this year, SAMSUNG ELECT LTD(F) (OTCMKTS:SSNLF) made 43% of all smartphone operating profits. Other companies operate at a loss or barely break even.
Even HTC, which was the second largest smartphone vendor in the United States, estimates to incur its first quarterly loss in its history in the current quarter.
And with the announcement of two new iPhone devices on September 10 , Apple Inc. (NASDAQ:AAPL) is likely to grab a bigger piece of the smartphone market. The Cupertino-based company has reached a deal with China Mobileto sell its low-cost iPhone 5C. That will expose Apple to more than 700 million new customers. China is the third largest market for Apple after the United States and Europe.
A deal with China Mobile brings a significant growth opportunity for Apple Inc. (NASDAQ:AAPL), but the cost of the new iPhone 5C is still much higher than expected. The iPhone 5C was supposed to compete with low-cost Android smartphones. But it has been priced at $735 in China, just $131 less than iPhone 5S . So, it may not leave much of an impact on low-end emerging markets where Android smartphones are available at $100 to $150.
Change is the only constant
Apple Inc. (NASDAQ:AAPL) and SAMSUNG ELECT LTD(F) (OTCMKTS:SSNLF) aren’t going to be kings forever. That’s simply because the tech landscape continues to evolve and change. Not too long ago, Nokia Corporation (ADR) (NYSE:NOK) and BlackBerry Ltd (NASDAQ:BBRY) (formerly Research In Motion) ruled the mobile phone industry. Now, Nokia’s handset business and patents have been acquired by Microsoft for a meager price tag of $7.2 billion, and BlackBerry is looking for a prospective buyer.
Sooner or later someone will challenge their leadership. And one company that has everything it takes to end their dominance is Amazon.com Inc. (NASDAQ:AMZN). Things are changing fast. Now, it’s more about software, apps, and a well-connected ecosystem than megapixels. Amazon has it all: digital media, apps, services, and e-commerce.
Amazon can’t afford to do this
Amazon.com, Inc. (NASDAQ:AMZN) has been planning a foray into smartphone market for a long time now. Jessica Lessin and Amir Efrati, former The Wall Street Journal reporters last week reported that Jeff Bezos is planning to give away smartphones to customers for free. Sources told Lessin and Efrati that Amazon would make sure customers receive devices without paying a dime, irrespective of a wireless contract. Amazon, for its part, has unequivocally denied these rumors.
If Amazon.com, Inc. (NASDAQ:AMZN) did proceed, it wouldn’t make sense. In any case, Amazon would price its new smartphones reasonably enough to snatch market share from competitors. But the device is unlikely to have a big fat zero on its price tag. Reason? It will seriously hurt the company’s earnings. If Amazon doesn’t make money on the hardware, it will be hard to compensate the cost of a device from the content and services.
Amazon.com, Inc. (NASDAQ:AMZN) tried to do the same thing with Kindle in 2011. It started selling Kindle at break-even prices to make money when customers purchase games, e-books, movies, and other stuff. Yes, Amazon was successful in disrupting sales of other hardware makers. But its own earnings went from $1.37 a share to negative territory in less than two years.
So, what would work for Amazon?
Giving away a device for free will crush earnings. However, the smartphone could be a conditional offer on an Amazon Prime membership. Though Amazon.com, Inc. (NASDAQ:AMZN) loses considerable money on “free shipping” under the program, Amazon Prime actually encourages spending. So, the company can more than make up for shipping costs. With a smartphone, there is a huge potential for chargers, earphones, cases, gizmos, and other sales.
Another way Amazon.com, Inc. (NASDAQ:AMZN) could give away the smartphone is, buy a certain amount of our products, digital content, or services; and you’ll get a smartphone for free. If Amazon gives away a smartphone or makes it a conditional offering, it will encourage people to switch from Apple Inc. (NASDAQ:AAPL)/Android to the Amazon ecosystem.
Foolish conclusion
In the changing landscape of the technology industry, someone has to break the dominance of the Apple Inc. (NASDAQ:AAPL)-SAMSUNG ELECT LTD(F) (OTCMKTS:SSNLF) duo. And that would be a company with a strong ecosystem: digital media, content, services, apps, software, and a solid distribution platform. Amazon.com, Inc. (NASDAQ:AMZN) has it all. So, it should have an edge when it ventures into the smartphone industry. Whether it offers a smartphone for free or on a conditional offer, Amazon has the capabilities to snatch customers away from Apple and Samsung.
The article Will This Company Break Apple and Samsung’s Smartphone Dominance? originally appeared on Fool.com.
Vikas Shukla has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com and Apple.
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