2 Alternatives to Apple and Samsung
Investors should be wary of these tech giants taking market share from Apple and Samsung.
Since the revolutionary launch of the iPhone in 2007, the smartphone market has been dominated by two companies – Apple (NASDAQ: AAPL) and Samsung (KRX: 005930). Although these companies are still market leaders, they have seen a significant decrease in their market share over the past few years. Samsung’s market share peaked in Q3 2013, at 32.5%. Apple’s market share peaked at 23% in Q1 2012. Today, Apple and Samsung’s market share is 10.1% and 22.7% respectively. This loss has been caused by the increase in popularity of cheaper, high quality alternatives.
These two companies offer a more affordable alternative to Apple and Samsung and have grown significantly in recent years.
Chinese electronics company, Xiaomi (HKG: 1810), released its first smartphone in 2011, and has grown to become the fourth biggest smartphone company, owning 9.7% of the global smartphone market as of Q2 2019. Xiaomi are also currently leaders in the world’s two largest smartphone markets, China and India.
In 2018, Xiaomi’s revenue reached 174 billion RMB ($24.5 billion), an increase of 53% from 2017. Much of this growth has been attributed to Xiaomi’s high-quality products at low prices. Xiaomi currently operates a vertically integrated business model, where it owns parts of the supply chain and can thus sell products at a lower price. Xiaomi then profit off of the sale of content and advertising, as they have created an app store and a TV service, similar to Apple. Revenue from this segment saw a 61% increase in 2018 and makes up 9% of its total sales.
Another key similarity between Apple and Xiaomi’s business model is the ecosystem surrounding their devices. Similar to the Apple’s sticky ecosystem, Xiaomi have developed the ‘MiOT’ ecosystem which connects a range of IoT devices spanning from the Mi Electric Scooter to the Mi Washing Machine. This model has worked well for Xiaomi as revenue from this segment grew 89% in 2018 and makes up roughly 25% of its total revenue.
Another Chinese smartphone manufacturer that offers consumers a great alternative to Apple or Samsung is Huawei. In recent times, Huawei, have become popular amongst consumers and its financials have reflected this – in 2018 revenue grew 19%. A lot of this success comes from its diverse array of products, with smartphones available at all price points. According to Huawei, its high-end smartphones, such as the P20 and the Mate 20 series, have spearheaded its overall growth in the smartphone space.
Despite being a privately traded company, investors in Apple or Samsung should beware the threat Huawei pose on their investments. In May 2019, Huawei overtook Apple to become the second largest smartphone provider. Now, Huawei own 18% of the global smartphone market share and are second only to Samsung.
One of the biggest threats to Huawei’s business is its poor US relations. During the ongoing trade war between the US and China, Huawei were restricted from doing business with US companies. Although US President Donald Trump has agreed to resume talks, Huawei claims its consumer business revenue will fall by at least $10 billion due to this ban. In an attempt to alleviate these losses, Huawei have been investing heavily in research and development, with 10% of its annual revenue reinvested in R&D. This spending has led to the creation of new technologies, such as the Ascend 910 chip, which will compete with Nvidia’s (NASDAQ: NVDA) GPUs and Google’s (NASDAQ: GOOGL) TPUs, reducing Huawei’s overall dependence on US hardware.
The Sluggish Smartphone Industry
Besides losing market share, Apple and Samsung face difficulties from the global slowdown in the smartphone industry, with Gartner reporting that smartphone sales declined 2.7% in Q1 2019 alone. In Apple’s most recent quarter, sales fell 12% compared to the same time last year.
Samsung’s smartphone sales grew, on the other hand, due to an increase in low to mid-range smartphone sales. These sales have come at a cost, however, as Samsung was forced to lower its EBITDA margins from 36% to 24% in order to compete. These companies aren’t the only companies feeling the pressure, however, as Google reported that sales of its Pixel smartphone were down and LG (KRX: 066570) announced that mobile sales fell by 33% in Q1 2019.
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