Apple, Samsung Could Crumble Under High-End Smartphone Pressure
Apple (AAPL), Samsung Could Crumble Under High-End Smartphone Pressure
1:18 PM 5/22/2013 - StreetInsider
While Apple (NASDAQ: AAPL) CEO Tim Cook is busy battling Congress over the company's tax strategy, a bigger storm is brewing. Namely, the company's nemeses are busy developing products and pricing strategies to take the company's market share. If these nemeses have their way, even Apple's rival Samsung won't fair well.
According to Berenberg analyst Adnaan Ahmad, the next 12 to 18 months with be a "potential watershed for the classical hardware profits business model as Google (NASDAQ: GOOG), Amazon (NASDAQ: AMZN) and potentially Microsoft (NASDAQ: MSFT) and others introduce smartphones and tablets with a "hardware at cost or a loss" strategy."
If any of these companies is successful with large consumer uptake (which admittedly has not been the case to date), it will put a major strain on the margin dynamics of the hardware industry, the analyst said.
Google's "X" project for new smartphones and potentially tablets, coupled with the possibility of an Amazon smartphone should be "front and centre" in investors' minds when thinking about hardware industry margin structure in the mid-term, Ahmad said. These companies can leverage their place in the market to offer high-end smartphone quality at up to 50% cheaper than equivalent devices from Apple, Samsung and the traditional hardware industry.
The upcoming launch of Google "X" products is expected to occur in the next six to 12 months.
While good for the consumer, the cheaper phones will also be positive for telecos like AT&T (NYSE: T) and Verizon (NYSE: VZ) as they will be able to substantially lower their current subsidy levels on high-end devices.
"We remain convinced that competition among traditional vendors, feature creep, the shift to lower-priced devices, slower industry growth and the potential of new platform players as described in this note will put pressure on smartphone industry margins."
The firm is keeping their bearish structural views on Apple, Samsung, HTC, Nokia (NYSE: NOK), BlackBerry (NASDAQ: BBRY) and ZTE.