Samsung's Third Quarter Sales Lead Over Apple iPhone Is No Big Surprise

By Wayne Rash  |  Posted 2011-10-29

Samsung's Third Quarter Sales Lead Over Apple iPhone Is No Big Surprise

For the third quarter of 2011, worldwide sales of Samsung Android phones have outpaced sales of Apple iPhones, according to this Reuters report on market research from Strategic Analytics. Samsung's sales strength may help explain Apple's frantic attempts to attack Samsung in court, but this should be no surprise to anyone. Samsung, quite simply, is doing something that Apple can't. It's selling inexpensive smartphones.

This isn't to suggest that all of Samsung's phones are cheap, because they're not. While the Samsung Galaxy S II, costs slightly less than the Apple iPhone 4S, it isn't cheap enough to make a huge difference, but it's comparable. However, unlike the iPhone 4S, the Galaxy S II was being sold in the third quarter. This means that Apple had only the old iPhone 4, while Samsung had the Galaxy S and S II and a host of other Android phones at all price points. And that's just part of the difference.

Another reason for Samsung's third-quarter charge to the lead is market anticipation of the arrival of a new iPhone. While it wasn't clear until shortly before the iPhone 4S was released what Apple was announcing, most potential customers were hoping for an iPhone 5.

This meant that they held off buying a new iPhone until the announcement, which happened in October. This meant that sales took a hit at the end of the third quarter as customers held off buying iPhones. But while there's never a single explanation for sales surges such as the one just reported it comes down to the apparent conclusion that iPhone sales slowed slightly, but Samsung kept selling.

Pricing on the phones also explains a lot. Like Apple, Samsung sells into a global market. But unlike Apple, Samsung sells a lot of phones that cost a lot less than the iPhone and this is a huge factor in much of the global sales area where people simply can't afford an iPhone, but still need the computing power that a smartphone provides.

While it may come as a surprise to many U.S. smartphone customers, the market distortion that occurs because mobile service carriers subsidize smartphone pricing in the United States and some parts of Europe doesn't exist elsewhere.

In most parts of the world, customers have to buy the smartphone at full price and as anyone who has tried to buy a phone without a contract knows, that can be expensive. Worse, the prices in the United States with or without subsidizes, are lower than elsewhere. It's not uncommon for iPhone prices to exceed $1,000 in some international markets.

Samsung, Apple Sales Battle Likely to Continue

Considering that incomes are generally lower than in the U.S. and Western Europe, this makes the iPhone a device that only the elite can afford. While the iPhone remains a status symbol for many around the world, most people can't afford status symbols.

But people can afford smartphones if they're reasonably priced and if the data plans are also reasonable. The difference between the United States and elsewhere in terms of data plans is that the demand for 4G speeds doesn't exist in most parts of the world. In fact, all that most people need can be satisfied by much slower data plans that deliver email and messaging, but not movies and music.

In other words, the market in most of the world is different from the market in the United States and the phones that Samsung sells meet those differing needs more closely than the phones sold by Apple. When you look at the manner in which Samsung has tailored their product lineup on a global basis, it's clear why they're outselling Apple.

But the third quarter of 2011 was the first quarter in which this sales edge was obvious. While nobody knows for sure what all of the factors might have been, the most likely explanation is that the rest of the world is catching up to the United States in terms of perceived need to have a smartphone. This meant that a lot more smartphones should be selling outside the United States. In fact, that's apparently the case, since a number of analyst reports published recently say that smartphone sales dropped slightly in the United States in the third quarter.

Exactly why sales in the United States dropped could be at least partly explained by the anticipation of the new iPhone. It could also mean that the smartphone market in the United States is becoming saturated. The rate of sales could also be explained by the economy, although that seems less unlikely, since consumer confidence was up during the same period.

But now that we're in the fourth quarter, I think Samsung is unlikely to keep that lead for the long term. The biggest reason is that the iPhone 4S was released in early October and sales were very strong. While the Galaxy S II sales globally have been very strong, part of those sales were in the third quarter and it's not clear that fourth quarter sales will be strong enough to offset Apple sales. In the short term, I think that we'll see Samsung and Apple trading the top spot, depending on which company has the newest, most in-demand device during a specific quarter. 

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