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Summary:

It was pretty clear that Samsung would eventually overtake Apple in terms of smartphone sales, and this past quarter, that happened. But Apple also slipped in the overall phone sales category, beat by a rival that could be more of a long-term threat: China’s ZTE.

apple-zte-samsung

It was pretty clear that Samsung would eventually overtake Apple in terms of smartphone sales. And this past quarter, thanks in part to the introduction of the Samsung Galaxy S II and the later than usual upgrade to Apple’s iPhone, that happened. But Apple also slipped in the overall phone sales category, dropping one spot behind a rival that could be more of a long-term threat: China’s ZTE.

Samsung

Samsung had a very strong quarter, according to numbers it revealed on Friday to investors. Its shipments (which it doesn’t provide specific numbers for) jumped more than 40 percent during the third quarter. Strategy Analytics estimates that amounts to total sales of nearly 28 million devices, while Apple moved 17 million during the same period.

During the quarter, however, it’s worth noting that Samsung had a brand-new product come to market, while Apple was still selling a device that was more than a year old. Rumors were also circulating widely about what the next iPhone would bring, and the promise of a new device could have kept potential iPhone consumers on the fence, as Apple itself suggested during its last quarterly earnings conference call.

ZTE and China

The less-publicized but possibly greater challenge comes from ZTE. The China-based mobile device maker passed Apple in the global handset shipment rankings in Q3 to become No. 4 overall. China’s top three device makers actually grew by 56 percent year over year combined, representing the market leaders in terms of shipment growth.

For Apple, China represents an increasingly important part of its worldwide sales breakdown. China delivers the second-most revenue for Apple after the U.S., and Tim Cook said during the company’s last conference call that it is Apple’s “fastest-growing region by far.” Threats in that market could well become the competition for Apple’s primary source of consumer dollars in the next decade or so.

ZTE is also launching a smartphone invasion in the U.S., along with Huawei, another major Chinese handset maker. ZTE and Huawei appear poised to flood the U.S. market with low-cost Android devices. These cheap, mass-market devices could do an end around on both Apple and Samsung as they battle for the upper tiers of the market.

Apple’s strategy

In many ways, this is a fight for which Apple has already deployed the weapons. During its last device refresh, it kept the 3GS, and it plans to sell it alongside a cheaper iPhone 4 and the high-end iPhone 4S. The addition of the free (on-contract) phone at the bottom end is already a huge step toward preventing further erosion of market share to low-cost devices, but its effects won’t be felt until the next quarter.

From another perspective of what Apple is already doing, the company is aggressively pursuing Samsung’s phones and tablets with ongoing patent litigation around the world. The stated goal of such litigation, according to both comments from Jobs’ recent biography and Apple’s lawyers in one instance, is not licensing but to stop the sale of Samsung devices. So far, the effects of those suits have mostly been felt with Samsung’s tablet division, but the outcome of future hearings could have a significant effect on Samsung’s ability to continue to offer its devices in some markets.

Apple has also shown that it doesn’t need to be a market share leader to be the most successful and profitable device maker around. As long as it can keep growing its customer base with subsequent devices, its revenue should continue to outpace the market, thanks to aggressive margins and a tightly knitted software and hardware ecosystem that sells apps and media as well as devices. I also think we will see the company push even more value-add innovations such as iCloud to make its products stand out from the crowd. If other new product initiatives succeed, like the rumored Apple television, the halo effect will also keep new users rolling in.

  1. Apple really doesn’t care about market share, they build the best phone, PC,
    tablet they can and then price it fairly. I know they are tired of other Corporations ripping off their IP, and justifiably so! I hope they never fall into the market share trap. They make more money than all the other smart phone makers combined, why would they jump in the race for market share that sites like yours love to report on. Also, the Android market is full of buy one get one free, returned or exchanged phones,
    and questionable sales numbers from Samsung and others.

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  2. Laughing_Boy48 Friday, October 28, 2011

    Apple is heading into its best quarter so their lowered iPhone sales is only a momentary blip. The iPhone 4S was just going on sale in 22 additional countries today which will give the iPhone a further sales boost for the quarter. Yes, Samsung sold (or shipped-there’s still some discrepancy about which) more Galaxy S IIs, etc. but Samsung’s smartphone profits were about 33% of the iPhone’s profits. In other words, even if they sell millions of smartphones more than Apple, they still won’t be able to make it up in profits. Samsung did very well this year with their Galaxy series smartphones. They pretty much had to clone the iPhone to do it. It’s true that being a good thief has has certainly helped Samsung short-term, but it’s not going to last forever.

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    1. Apple did not have sales any lower than Apple estimated. Wall Street estimated higher sales than Apple had already publicly predicted so it was reported this way.

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  3. Yet another gigaom commentary devoid of any research, fact or analysis. First Apple reports units sold not shipped. Samsung reports units shipped which include items sitting in warehouse or on shelves. Third the only source for this are estimates of units shipped by Strategy Analytics whoever they are. Estimates and shipped not sold.
    More importantly there is no doubt that Apple is making far more money than Samsung in mobile devices.

    Heckuva job Darrell. But you got your pageviews which is what this article is really for.

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  4. apple lost market share due

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  5. oops i guess i clicked “Submit” by mistake…anyway. apple lost market share cause they waited a long time to introduce the updated iPhone…and it is selling like hot cakes…one thing to note is that Apple is a luxury brand and status symbol in china…people want it and once these phones go on sale there, they will take a huge chunk of the market…still apple is not about market share, they are about delivering a good product and making huge profits…

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