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Apple makes way to Samsung as richest cell phone maker

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Samsung has overtaken Apple as the most profitable cell phone maker in the world. While Samsung’s share of the global handset market rose to 33%, Apple’s dropped to 14%.

According to Strategy Analytics “Apple slipped into second position, as margins have been hit by lackluster iPhone 5 volumes and tougher competition in China.”

During the second quarter of this year, Strategy Analytics says Samsung expects to have made an estimated $5.2 billion profit from its handsets (basic models and smartphones), while Apple’s iPhone sales will not be more than $3.2 billion, a huge drop compared to $4.6 billion during the same quarter in 2012.

These figures are estimates made by Strategy Analytics, and not data Apple and Samsung have provided. Also, the figures refer just to telephone handsets and do not include other products both companies make and sell.

Many wonder whether consumers are still as keen today to update to the latest iPhone. Apple became the world’s richest company thanks to its iPhone sales.

The iPhone 4, which costs a great deal less than the iPhone 5, is still popular. This recent change in purchasing patterns – buying “older models” – has brought down the average unit price of iPhones.

Apple is no longer enjoying the healthy margins on the sale of each smartphone it used to have. In high- and middle-income countries, smartphone ownership is reaching a much wider socioeconomic spectrum.

Reaching people with lower incomes means a much bigger market, but also lower unit prices. During the first quarter of 2013, iPhone unit prices averaged $613; this has dropped to $581, according to the company’s latest financial results.

All smartphone makers are having to learn to live with lower unit prices, including Samsung. This is nothing new. The first production-line ballpoint pens (biros) were sold at Gimbels retail store in America for $12.50 in the 1940s. Today they can be found at $1 for a box of eight.

So far, in the quest for markets as profit margins are squeezed, Samsung has the upper hand. Samsung’s blockbuster, the Galaxy S4, is leading the race.

Samsung has succeeded in penetrating more widely into the US market, while ZTE, Huawei and a number of local brands are growing rapidly in China.

According to a Strategy Analytics report:

“Apple is now under intense pressure to launch more iPhone models at cheaper price-points or with larger screens to fend off the surging competition and recapture lost profits in the second half of 2013.”

As Forbes noted, on Tuesday 23rd July, Tim Cook, Apple’s CEO said when announcing the company’s third fiscal quarter financial results “China was weaker in the quarter.” This includes China, Hong Kong and Taiwan, what Apple calls “greater China” when referring to the Chinese market. Apple’s operating income in greater China dropped 42% in its just-completed quarter ending June 2013, to $1.44 billion, from $2.47 billion at the end of the same quarter in 2012.

WSJ (Wall Street Journal) noted that although Samsung “is expected to reveal its best operating profit ever, ..that is unlikely to soothe concerns that sales of its flagship Galaxy S4 smartphone may be slowing down.”

Apple’s earnings disappoint – WSJ Live