Apple Inc. (NASDAQ:AAPL), Samsung and the SmartPhone Battle

Apple Inc. (NASDAQ:AAPL), Samsung and the SmartPhone Battle

South Korean giant Samsung Electronics posted an 8.0 percent fall in second quarter net profit Thursday and promised “flexible” pricing of its new flagship smartphone after less than stellar sales contributed to a slump in its mobile unit’s earnings.

The world’s largest smartphone maker said net profit for the April-June period stood at 5.75 trillion won (4.9 billion), down from 6.25 trillion won a year ago and slightly below analyst estimates.

The conglomerate has now seen its net profit decline for five straight quarters year-on-year, mainly due to heightened competition in an increasingly saturated smartphone market that it had dominated for years.

Operating profit also shrank 4.03 percent from a year ago to 6.9 trillion won, while sales dropped 7.3 percent to 48.5 trillion won.

Samsung has faced a double challenge from US arch-rival Apple in the high-end smartphone market and rising Chinese firms like Xiaomi in the mid- and low-end market.

Hopes of a turnaround had largely been pinned on the sixth edition of its flagship smartphone launched in April.

The Galaxy S6 and S6 Edge with a wraparound screen received rave reviews, but company predictions of record sales fell short of expectations, partly due to production and supply constraints.

Operating profit in the mobile division was down 38 percent year-on-year in the second quarter at 2.76 trillion won.

The company also announced Thursday a mid-year dividend of 1,000 won a share, or 148.9 trillion won in total, compared to 500 won a year ago.

But it did not stop investors from dumping Samsung shares in Seoul stock market, where the firm’s shares dropped 3.8 percent to close at 1.21 million won.

– ‘Mounting challenges’ –

The second half of 2015 would continue to pose “mounting challenges”, the firm said in its regulatory filing, with smartphone demand predicted to increase but at a lower rate.

“We will strive to maintain solid sales of high-end smartphones by flexibly adjusting S6 and Edge prices depending on marketing circumstances, while also launching new large-display models,” Park Jin-Young, vice head of communications at Samsung’s mobile division said during a conference call.

In an effort to see off smaller rivals nipping at its heels in emerging markets, Samsung slimmed down its line of low- and mid-range smartphones last year, and ramped up production of those that remained in a higher-volume, lower-price strategy.

At the same time, booming memory chip sales have managed to mitigate some of the slump elsewhere, thanks to tight supply and strong pricing.

Samsung said operating profit for its semi-conductor unit surged 80 percent in the second quarter to 3.4 trillion won.

“Samsung’s semiconductor business has a pretty good outlook down the road, but weakening demand for smartphones, LCD TV and personal computers will not be enough to improve future earnings,” said Lee Jeong, analyst at Eugene Investment and Securities.

The company’s recent slump has stood in stark contrast to the performance of Apple, which has seen profits gain sharply on strong sales of its latest iPhone series.

The US tech giant reported a 38 percent profit jump for the second quarter last week to 10.7 billion.

Apple sold 47.5 million iPhones in the quarter, with sales up 85 percent in Greater China where the company’s overall revenue more than doubled to 13 billion.

Samsung’s total handset sales for the same period stood at 89 million, down from 95 million a year ago, the company said. Smartphones accounted for around 80 percent of the units shipped.

– Merger plans –

Thursday’s conference call made no specific mention of further merger plans, as Samsung’s founding Lee family seeks to boost control over the conglomerate ahead of a generational power transfer.

This month, the company scraped through a shareholder vote on the proposed merger of two affiliates, after a US hedge fund led an unprecedented investor revolt against the deal.

Although the anti-merger camp lost the final vote, its muscular campaign marked a watershed moment for shareholder activism in South Korea, where family-run conglomerates, or “chaebol”, like Samsung dominate the economy and are used to running their businesses with minimum investor interference.

Despite slowing sales, Samsung remained the world’s top smartphone vendor in the second quarter with a global market share of 21.7 percent, according to a quarterly survey by research firm IDC.

Apple Inc. (Apple), incorporated on January 3, 1977, designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players and sells a variety of related software, services, peripherals, networking solutions and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud and a variety of accessory, service and support offerings. The Company offers a range of mobile communication and media devices, personal computing products and portable digital music players, as well as a variety of related software, services, peripherals, networking solutions and third-party hardware and software products. In addition, the Company offers its own software products, including iOS, the Company’s mobile operating system; OS X, the Company’s Mac operating system; and server and application software. The Company’s primary products include iPhone, iPad, Mac, iPod, iTunes, Mac App Store, iCloud, Operating System Software, Application Software and Other Application Software.

iPhone

iPhone combines a mobile phone, an iPod and an Internet communications device in a single handheld product. Based on the Company’s Multi-Touch user interface, iPhone features desktop-class email, Web browsing, searching and maps and is compatible with both Mac and Windows-based computers. iPhone automatically syncs content from users’ iTunes libraries, as well as contacts, bookmarks and email accounts. iPhone allows customers to access the iTunes Store to download audio and video files, as well as a variety of other digital content and applications. The Company launched iPhone 5, its latest version of iPhone. In addition to the Company’s own iPhone accessories, third-party iPhone compatible accessories are available through the Company’s online and retail stores and from third parties.

iPad

iPad is a multi-purpose mobile device for browsing the Web, reading and sending email, viewing photos, watching videos, listening to music, playing games, reading e-books and more. iPad is based on the Company’s Multi-Touch technology and allows customers to connect with their applications and content in a more interactive way. iPad allows customers to access the iTunes Store to download audio and video files, as well as a variety of other digital content and applications. In addition to the Company’s own iPad accessories, third-party iPad compatible accessories are available through the Company’s online and retail stores and from third parties.

Mac

The Company offers a range of personal computing products, including desktop and portable computers, related devices and peripherals and third-party hardware products. The Company’s Mac desktop and portable systems feature Intel microprocessors, the OS X operating system and the iLife suite of software for creation and management of digital photography, music, movies, DVDs and Websites. The Company’s desktop computers include iMac, Mac Pro and Mac mini. The Company’s portable computers include MacBook Pro and MacBook Air.

iPod

The Company’s iPod line of portable digital music and media players includes iPod touch, iPod nano, iPod shuffle and iPod classic. All iPods work with iTunes. In addition to the Company’s own iPod accessories, third-party iPod-compatible accessories are available through the Company’s online and retail stores and from third parties. The iPod touch, based on iOS, is a flash-memory-based iPod with a widescreen Retina display, a Multi-Touch user interface and built-in iSight camera. iPod touch allows customers to access the iTunes Store to download audio and video content, as well as a variety of digital applications. The iPod nano is a flash-memory-based iPod that features the Company’s Multi-Touch interface allowing customers to navigate their music collection by tapping or swiping the display and built-in Bluetooth for wireless listening. The iPod shuffle is a flash-memory- based iPod that features a clickable control pad to control music playback and VoiceOver technology enabling customers to hear song titles, artists and playlist names. The iPod classic is a hard-drive based portable digital music and video player.

iTunes

iTunes is an application that supports the purchase, download, organization and playback of digital audio and video files and is available for both Mac and Windows-based computers. iTunes features integration with iCloud, AirPlay wireless music playback, Genius Mixes, Home Sharing and syncing functionality with iOS devices. iTunes is integrated with the iTunes Store, a service that allows customers to discover, purchase, rent and download digital content and applications. The iTunes Store includes the App Store and iBookstore.

Mac App Store

The Mac App Store allows customers to discover, download and install Mac applications. The Mac App Store offers applications in education, games, graphics and design, lifestyle, productivity, utilities and other categories. The Company’s OS X operating system software and its iLife, iWork and other application software titles are also available on the Mac App Store.

iCloud

iCloud is the Company’s cloud service, which stores music, photos, applications, contacts, calendars and documents and wirelessly pushes them to multiple iOS devices, Mac and Windows-based computers. iCloud’s features include iTunes in the Cloud, Photo Stream, Documents in the Cloud, Contacts, Calendar, Mail, automatic downloads and purchase history for applications and iBooks and iCloud Backup. Users can sign up for free access to iCloud using a device running qualifying versions of iOS or OS X. Software Products and Operating System Software The Company offers a range of software products for consumers and for SMB, education, enterprise and government customers, including the Company’s iOS and OS X operating system software; server software; professional application software; and consumer, education and business oriented application software. iOS is the Company’s mobile operating system that serves as the foundation for iOS devices. iOS supports iCloud and includes features, such as Notification Center, a way to view and manage notifications in one place; iMessage, a messaging service that allows users to send text messages, photos and videos between iOS devices and Maps, with turn-by-turn navigation. iOS supports Siri, a voice activated intelligent assistant, which is available on qualifying iOS devices. OS X, the Company’s Mac operating system, is built on an open-source UNIX-based foundation. Application Software iLife is the Company’s consumer-oriented digital lifestyle application suite included with all Mac computers. iLife features iPhoto, iMovie, iDigital Versatile Disc (DVD), GarageBand and iWeb. iPhoto is the Company’s consumer-oriented digital photo application and iMovie is the Company’s consumer-oriented digital video editing software application. iDVD is the Company’s consumer-oriented software application that enables customers to turn iMovie files, QuickTime files and digital pictures into interactive DVDs. GarageBand is the Company’s consumer-oriented music creation application that allows customers to play, record and create music. iWeb allows customers to create online photo albums, blogs and podcasts and to customize websites using editing tools. iWork is the Company’s integrated productivity suite designed to help users create, present and publish documents, presentations and spreadsheets. iWork includes Pages for word processing and page layout, Keynote for presentations and Numbers for spreadsheets. The Company also has a Multi-Touch version of each iWork application designed specifically for use on iOS devices.

Other Application Software

The Company also sells various other application software including Final Cut Pro, Logic Studio, Logic Pro and its FileMaker Pro database software. The Company manufactures the Apple LED Cinema Display and Thunderbolt Display. The Company also sells a range of Apple-branded and third-party Mac-compatible and iOS-compatible peripheral products, including printers, storage devices, computer memory, digital video and still cameras and various other computing products and supplies. Apple TV allows customers to watch movies and television shows on their high definition television. Content from iTunes, Netflix, YouTube and Flickr, as well as music, photos, videos and podcasts from a Mac or Windows-based computer can also be wirelessly streamed to a television through Apple TV.

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