Apple’s difficulty could be rival Samsung’s opportunity

For a while there Apple could do no wrong. The company was turning in incredible sales and growth figures every quarter for the iPhone and iPad, investors were happy and its stock price rocketed.

It was the most valuable company in the world, overtaking Exxon and holding off brief challenges from Google’s parent Alphabet.

But it was a trajectory that couldn’t last. At some point the sales were bound to plateau as Apple saturated the market with its products, limiting Apple’s potential to grow sales, and put in the kind of figures that kept investors happy.

That much was evident in the past couple of quarters, when Apple turned in sales figures that were lower than previous reporting periods and failed to meet investor demands for ever higher growth.

In the second quarter of the year the company saw its sales growth stalled for the first time since the launch of the iPhone in 2007. It sold 51.2 million iPhones in the three-month period, some 10 million fewer than the previous year.

Expectations

The third quarter, reported last week, fared a little better. Apple sold 40.4 million iPhones, in line with expectations, and net profit was $.8 billion (€7.1bn) in the quarter. That was a drop of 15 per cent and 27 per cent respectively.

Part of the decline is being attributed to the tick-tock approach Apple has to product development: a new product, such as the iPhone 6 one year; the internal overhaul a year later.

Regardless, the end result is Apple’s previously smooth path has become a little rocky of late.

Contrast that with Samsung’s latest results. The Korean company reported second-quarter profit that beat expectations, with stronger sales of the S7 smartphone and aggressive cost-cuts helping lift results. Net income was 5.83 trillion won (€4.66bn).

Does Apple’s difficult period present an opportunity for rival Samsung? The two companies have been battling for the title of top smartphone maker for several years, and it has become an increasingly bitter war. Not only has it been fought in the consumer arena, but it has been dragged into the courts too, with patent infringement actions coming from both sides.

Samsung has had its tough spells in recent years as some of its flagship handsets failed to hit the market with consumers, but the current Samsung Galaxy S7 Edge is galvanising the company.

And now it has the Note 7, which was announced earlier this week. Like Apple with the tablet sector, the “phablet” sector, as it has come to be known, is something that Samsung has been involved in from the very beginning. It was its first Note device that began Samsung’s march toward larger screened devices, and as other manufacturers followed suit, Apple was eventually forced to fall in line, launching the iPhone 6 Plus in 2014.

Samsung is concentrating, like Blackberry, on a few of Android’s perceived weaknesses. The new Note comes with beefed up security, using Samsung Knox to lock down your private files and encrypt the system.

Prying eyes

There is also Secure Folder, an area where you can drop your files and apps that you want to keep away from prying eyes. It’s easy enough to do. In a demo a Samsung rep showed how to transfer photos through selecting the images you would like to move, pressing the menu button and selecting the option to move them to a secure folder. Of course, live demos being live demos, it wouldn’t work when screen mirroring was switched on, but performed fine once it was disabled.

It’s not just about hiding files, though. You can have an email account in there on an app, while having a separate account on the same email app outside the secure folder. The system essentially duplicates the app and maintains both as if they are two separate programmes.

This will come in handy for those using this as both a work and personal device, with more sensitive email accounts and files living inside this secure folder.

Samsung is also trying out new security features such as the iris scanner that will allow you to unlock your phone without laying a finger on it. Once you have your iris registered all it takes is a press of a button to wake the phone, look at it, and it unlocks in seconds.

Encryption

Apple, for its part, has been vocal about respecting consumers’ privacy and security, and has backed up its words with actions. It fought back against FBI requests to break encryption on iPhones in the investigation into the San Bernadino killings because of the implications for other users.

One thing that is tough to overcome is the fierce loyalty that Apple inspires from its fans. And while there is a core of Apple users who would never consider jumping ship to another platform, not everyone is of the same opinion.

Apple chief executive Tim Cook was keen to highlight the strong "switcher" market in the last quarter, where Android users were abandoning Google's platform and moving to iPhone. Apple introduced an app that would help with migrating user information from the rival platform. There are few figures to indicate what the shift is like the other way, although anecdotal evidence shows that it happens.

With the newly announced Note 7, Samsung may have the momentum to carry it through to the next major announcement – the upcoming iPhone, which is expected early next month.

If everyone who wants an iPhone has an iPhone, what can Apple do to grow its sales? New products that will push people to upgrade is the obvious answer. New markets is the other. Apple has done both, with varying degrees of success.

The iPhone SE was intended to tap into the 30 million iPhone users that Apple believed did not want the larger screened iPhone 6s, because they simply prefer a smaller phone. That seems to have paid off for Apple, with SE sales described as strong in the third quarter of the year.

Rumours

But Apple is still perceived to have an innovation problem. The 3D Touch on its 6s phones has not been as compelling as it would have hoped, and rumours that the company is about to ditch the headphone jack on the iPhone in favour of lightning compatible headphones have not been well received.

If Apple follows its previous cycles the next launch should be a new device rather than an upgrade, but the rumours are that the iPhone 7 will be held until next year for the 10-year anniversary. That will leave this year with another evolution of the current handsets.

Apple has been pushing hard in China in the hopes of winning over the market. While initial growth was strong, that has fallen off a little. The latest results showed a decline in sales of more than a third. In the second quarter China sales were down 26 per cent.

However, chief executive Tim Cook said that the underlying business in China was stronger than the results imply, and he was encouraged about growth.

Investor Carl Icahn sold his entire Apple stake this year, citing China as the chief reason. Slowing economic growth and potential government interference that could make doing business more difficult are major worries.

Samsung, on the other hand, is still upbeat about its prospects and plans an exclusive Galaxy phone for the China market.

But there are some things that should be noted. Apple has now sold a billion iPhones. That’s a milestone for any company. Its profit figures are also more than Samsung’s despite Samsung’s sales figures and market share.

If Samsung does manage to capitalise on Apple’s troubles, perhaps it should look closely at how the company is handling the current lull. It may well need to follow a similar path in years to come.