Blog Post

Why only Samsung builds phones that can outsell an iPhone

For the first time in years, one single handset model has reportedly outsold the iPhone(s AAPL). Strategy Analytics says that more Samsung Galaxy S III phones than Apple iPhone 4S handsets were sold in third quarter of this year. Samsung moved 18 million such handsets while Apple sold 16.2 million during the three month period, says the research firm. It should be noted that Samsung’s figures represent shipments, not actual sales, but there’s a bigger point to be made here: Samsung is currently the only company that can even come close to competing with Apple when it comes to smartphones.

Sales vs shipments

Before explaining why, here’s a closer look at the data. Apple’s figures represent actual sales while Samsung’s numbers reflect the shipments of Galaxy S III handsets to carriers. That means if a carrier has an unsold Galaxy S III on the store shelf, it counts in this comparison. As a result, the Samsung figures of actual sales are lower than shipments. And if you were to count the 6 million iPhone 5 shipments in the Strategy Analytics report, Apple would outpace Samsung: 26.2 million to 18 million. However, in the big picture, that doesn’t matter.

Fewer phone models is a smart strategy

Back in 2010, I noted that Samsung was taking an Apple-like strategy for its smartphone business. At the time, Samsung offered the first Galaxy S handset running Google Android(s GOOG) and Samsung’s own TouchWiz user interface. Instead of multiple handset models offered, Samsung decided to focus on one handset for its flagship phone. Others, such as Motorola and HTC, for example, opted for a slew of handsets; each similar but yet different. With one phone model — just like Apple — Samsung benefits from production scale, common components, and similar experience for its Galaxy phone owners.

I revisited this topic again a year later when Samsung was about to surpass Nokia(s NOK) as the top seller of smartphones worldwide. I explained why Samsung was about to become the new smartphone king, pointing out even more reasons for the company’s rapid smartphone success. Samsung then debuted a successor flagship phone, the Galaxy S II, and it set a sales record: 1 million sales in the first 70 days of launch.

Even more so than Apple, Samsung controls parts

Here’s the thing: Inside the Galaxy S, the Galaxy S II, and now the Galaxy S III, are various hardware components manufactured directly by Samsung. The company makes its own chips to power phones, Super AMOLED handset displays and flash memory for internal storage.

Apple controls its iPhone hardware as well but not directly: It designs the chips for iOS devices, for example, which someone else builds and it often invests billions of dollars in component manufacturing plants in return for good pricing and primary production capacity. Aside from Samsung and Apple, who else can manage the component supply chain this well? Not Nokia, Motorola, HTC, LG or any other smartphone competitor I can think of.

Apple is using that manufacturing edge to produce more units with each new iPhone as well. That’s important because it helps Apple introduce its smartphone in more countries and on more carriers as soon as possible after launch. Guess what: When Samsung introduced the Galaxy S III this year in May, it said it would begin sales in Europe with 145 additional countries soon after. Not two weeks later, five U.S. carriers launched the device; a vast difference in the Galaxy S II launch, where the U.S. didn’t see the phone for six months or more, for example.

Apple wrote the playbook and Samsung is executing it

With each Galaxy smartphone iteration, Samsung continues to follow the Apple-like approach of controlling its own destiny as much as possible. Other competitors simply aren’t equipped to do so. So while Apple may have created the playbook for smartphone success, Samsung has replicated it more so than any other in this market. That actually shouldn’t surprise if you’ve followed the Apple v. Samsung trials: The courts have already found in favor of Apple for Samsung’s replication of certain smartphone design, features and functions.

Again, we can bicker over the definitions of sales and shipments, but I’m not sure that matters unless you want to declare a real “winner” today. More important to me is that Apple finally has some real competition in the market, even though it looks to be just one true competitor.

24 Responses to “Why only Samsung builds phones that can outsell an iPhone”

  1. Ricky Bonnell

    Marketing…. carrier incentives……solid hardware……Positive image of Android…… this is why Samsung can compete. If you get the right people talking positive, it can go a long way…… look at how many Palm Pre’s were sold….

  2. Motorola used to have world-class semiconductor design and manufacturing capabilities, but I think they’ve mostly split those divisions off or sold them to concentrate on being a cell phone design house. For example, Freescale Semiconductors used to be their semiconductor division.

  3. George S

    How about Samsung’s effective advertising strategies? Very much like Apple, Samsung has been bombarding the prime time TV ads slots with Apple-esque ads besides the ones that made fun of Apple fans.

  4. One thing about Samsung is their deep distribution. I was looking forward to. Trying an HTC or Nokia, but showrooms/ retail outlets either don’t have a good stock of these, or have no stock whatsoever. But Samsung? They. Are everywhere. So for a majority of consumers who are looking for ‘that iPhone kind of phone that is a wee bit cheaper’, there’s Samsung everywhere.

  5. raghuvadapalli

    couple of reasons.:
    1. Samsung is vertically integrated manufacturer with memory, chips, lcds in house and a free os.
    2. Samsung is nothing but a good manufacturer and gadget maker. Excluding some software features, Samsung doesn’t really spend much on innovation like Apple does. I bet Apple goes through multiple iterations before arriving at the final design. But for Samsung, all that they have to do is pick the one that is working well and build it efficiently and that they can do better than anyone else or even Apple itself. And that’s the reason Apple picked them in the first place.

    In general, Samsung is not good at inventing the success formula, but once they know they can execute it better than the formula inventor. Is this short lived.? potentially yes… as smart phone hardware matures (Samsung’s greatest strength), software will become more important and Samsung will be slowed down by Google release cycle. But if Motorola starts to get the early Android releases before Samsung, they will be at disadvantage.

    But for the recent Galaxy SIII, Samsung should really thank Apple for the “hole” they left till late September.

      • raghuvadapalli

        I guess my point was ‘can samsung sustain the good thing?” Even if Apple was successful because they “adopted” some old ideas in the first place, they have a differentiating factor called iOS. But for Samsung, HW is the only distinguishing factor and Googles’ own desire is working against Samsung. Only time will tell.

  6. The future of Samsung as a competitor to Apple isn’t likely to be any better than Sony. They not only haven’t the R&D talent to innovate and lead – long rang they haven’t the talent to compete. And don’t intend to.

    They aren’t willing to make the commitment required to compete in the marketplace – while that’s in the DNA of Apple. Financial analysts don’t understand that. Neither, apparently, do a lot of geeks.

    • Vikram Saxena

      Do you really feel that it takes more talent (and investment) in making the phone just the right shade of gray than developing the manufacturing processes which can deliver the retina displays or the A5-A6 chips in quantity and without defects? Those advancements in the semiconductor and LCD manufacturing is what is truly driving the mobile revolution. And those take a HUGE amount of money. A modern fab costs a few billions dollars!

      What distinguishes Apple is their focus on industrial design & aesthetics in a domain which neglecting the usability aspects of things. Most, if not all, of Apple’s value lies in integration of their software with the hardware. While there is a lot of talent which goes into being a great designer, it simply does not require the same level of risk or investment that a fab requires.

      You can ship a fix to the iOS overnight. It cost Intel $1B dollars to recall the faulty SandyBridge chip set. Wake and do some research.

  7. Could it be that Samsung succeeds because they DO NOT have “a” Steve Jobs …while various other virtues (such as – investment in differentiation from the droid army, investment in manufacturing, ruthless planning and execution etc) come in handy as well ? Think about it – not being blinded the aura of a Steve Jobs and the “my way or highway” religion of Apple, Samsung is able to outsmart Apple, in spite of what the courts have to say. Am no fan of Sammy, but hats off for what they have accomplished in the market.

  8. Jesse Robert Harvey

    Yea the writing has been on the wall for apple for a while Samsung rules…..but how did apple allow Samsung to get so far a head….. One sour apple if you ask me….Steve where are you…..

  9. Stephan Eggermont

    “real competition” Not really. Google has made sure with the Nexus 4 price point that Samsung profits will be 12 billion lower next year. Next years high end Android phones cost $349. 30 million devices in half a year with a $200 price drop means a lot less revenues.

  10. Michael W. Perry

    I love my iPhone, but this competition is good. I wonder if Samsung is offering one other plus that Apple has, OS upgradability. Most Android phones go into landfills with the same OS they shipped with. My iPhone 3GS shipped with iOS 3 but is now running iOS 6. That’s a big selling point.

    • Quit living in the Apple bubble. The very fact that you still use a 3GS tells us that you’re using a phone that should be tossed in the landfill. There are multiple reasons why the global marketshare for Android phones is so much greater than that for iPhones — the Android OS has matured, people don’t care for iOS like they did in 2007/08, and any new Android device is shipped with at least ICS if not Jelly Bean and will be upgradeable to accomodate the changes in hardware. The total number of apps issue is overrated and the difference is negligible (700,000 Android, 700,000+ Apple). Since the global marketshare for Android devices, particularly for the Galaxy SIII is so relatively astronomical these days, how easily upgradeable the OS is, is no longer a selling point.

      • Noku Rukakikika

        What do you do when you’re not being an overbearing bully? You’ve made it clear that only your opinion matters. Now clean up your room. Your parent’s basement has never been messier.

    • While OS upgradability is certainly delayed on Android phones, there is a reason why Samsung is able to move the numbers in that territory. Samsung/Android is selling a new philosophy which is different from Apple. Not better not worse, just different.

      Everyone to their opinion, but here is my observation:

      Samsung is taking huge advantage of where Apple is falling short – Smartphones are personal devices, we like making them our own, that means customization. Apple is failing to let users express their individuality and relish their uniqueness by taking a cookie cutter approach. That worked well when those shiny icons were novelty, but the world has moved on and Apple is still innovating by adding an extra row of icons. Samsung/Android is targeting that emotional desire of unique expression.

      Any honest S3 user would attest that iPhone is a better designed hardware with a better build quality, but is that enough? Apparently not. iPhone was one an elite device, now that everyone carries one and the only way to differentiate is with its case! Apple has got to come up with a new way of creating that sense of exclusivity (may it be with a new model or with value added software) in order to avoid being a commodity.

      You cant charge a premium on commodity, people will buy where its cheaper.

  11. Apple numbers are shipments also. Companies only report sales on some PR, everything else (like financial results) is shipments. And Strategy Analytics is also saying shipments.

    People say Apple is sales because of their stores (which shipment = sale) and supply constraint. But iPhone4S is sold through carriers, outside Apple store around the world, and i doubt 4S had problems with supply, so you shouldn’t assume is actual sale unless Apple say so (and they didn’t).

    Aside that, i agree with you that this whole thing about sales vs shipment is moot when a product has increasing shipments.

    • John Molloy

      Whatever. The point being is that the period of time they are talking about was when everyone was holding off for an iPhone 5 and Samsung channel stuffer. Whoop de do. Do that over the holiday quarter with a new iPhone in the channel.

  12. “Samsung continues to follow the Apple-like approach of controlling its own destiny as much as possible”

    What the hell does that even mean? Doesn’t every business strive to do so?
    It’s amazing how “offering fewer models” and “controlling parts” is now considered an Apple way of doing things, as if this is some sort of special tactic. It’s called management.

    • Nicholas

      Andy, that fewer model strategy is something that Apple definitely initiated. “Good, better, best” is definitely a construct that never existed with Dell and HP as the primary PC vendors. You could customize everything. Apple also began to limit that aspect to the chagrin of techies everywhere.

      In that light, controlling parts only became important with limits on manufacturing capacity in mobile.