Samsung loses top smartphone vendor title to Apple in Q4, according to analysts

Samsung Electronics lost its crown as the world's sole top smartphone vendor to Apple (NASDAQ: AAPL) in the fourth quarter for the first time in three years, according to analysts, following Apple's record iPhone sales and another drop in sales and earnings for Samsung's mobile division.

According to research firm Strategy Analytics, both Samsung and Apple sold 74.5 million smartphones in the fourth quarter, tying them for first place for the first time since the fourth quarter of 2011. Research firm Counterpoint Research said in a separate report that Apple actually overtook Samsung, with its 74.5 million iPhone sales beating Samsung's estimated 73.8 million smartphone unit sales.

Strategy Analytics shows Apple and Samsung neck-and-neck in global smartphone market share in the fourth quarter of 2014.

Samsung usually does not disclose its quarterly smartphones sales, but according to the Wall Street Journal, the company said it sold 95 million total handsets (smartphones and feature phones) in the fourth quarter, of which 71 million to 76 million were smartphones.

Overall, the electronics conglomerate said its fourth-quarter profit slipped 27 percent year-over-year to around $4.9 billion (5.35 trillion won), marking a third straight quarter of decline.

Sales in Samsung's key mobile segment fell 23 percent year-over-year to around $22.8 billion. Further, operating profit in the mobile business plunged 64 percent from a year ago to around $1.78 billion. According to the Journal, Samsung managed to limit the hit to its mobile unit's profit margin, which stood at 7.5 percent. While far below the 20 percent margin Samsung's mobile business has had in recent years, it was a bump up from 7.1 percent in the third quarter.

In its earnings presentation, Samsung said that despite a "slight decline in smartphone shipments" from the third quarter, earnings improved due to "efficient cost management" and an increase in revenue from an improved product mix. Samsung said its average selling price for mobile devices improved in the fourth quarter due to more high-end phone sales, mainly driven by its Galaxy Note 4. Samsung said tablet sales increased from the third quarter and that it was more efficient in managing its mobile marketing expenses as its inventory stabilized.

In 2015, Samsung said it expects continued growth, largely in emerging markets such as China and India. "Through new materials, innovative design and differentiated features, competitive products will be introduced to drive smartphone sales, while efficiency will be enhanced across R&D and marketing to increase profitability," Samsung said in a statement.

Samsung said that it will focus on both premium and mass market tablets "while enhancing product competitiveness for sustained growth." The company will also keep pushing into the wearables market "through a diversified product portfolio with unique designs." Samsung also said it will focus on expanding its reach in the enterprise market with its Knox mobile security platform, likely via its partnership with BlackBerry (NASDAQ:BBRY).

Samsung was the world's largest smartphone maker by volume for all of 2014, according to Strategy Analytics. But Samsung's strategy of building smartphones to cover every price point is coming back to bite the company as it faces challenges on multiple fronts, according to analysts.

"Apple's new iPhone 6 and 6 Plus models are proving wildly popular in China, United States and Europe," Strategy Analytics noted. "Samsung shipped 74.5 million smartphones worldwide and captured 20 percent market share in Q4 2013, dipping from 30 percent in Q4 2013. Samsung continues to face intense competition from Apple at the higher-end of the smartphone market, from Huawei in the middle-tiers, and from Xiaomi and others at the entry-level."

According to Strategy Analytics and Counterpoint, Lenovo-Motorola was the No. 3 global smartphone player by market share in the third quarter, followed by Huawei. Counterpoint had Xiaomi in the No. 5 spot.

Samsung is likely to continue facing pressure in smartphones, and could turn to its chipset business to help buoy its overall results. According to the Journal, analysts expect Samsung to post a modest recovery in its bottom line in 2015 on demand for its memory chips and processors.

"It's getting harder to make a killing from smartphones competing head on with the rivals, but competitors including Apple will have more Samsung chips inside," Ko Jung Woo, a Seoul-based analyst at BS Securities Co., told Bloomberg. "Smartphones are highly commoditized. Samsung can no longer monopolize the market."

Samsung is expected to unveil its latest flagship smartphone, the Galaxy S6, in March. "The Galaxy S6 smartphone is a very important phone for Samsung this year," Lee Seung Woo, an analyst at IBK Securities Co. told Bloomberg. "Although they are increasing the number of lower-margin smartphones globally, that's not where they are making a living."

Rumors indicate Samsung is going to go with an all-metal design for the S6 and may be using its own chipsets inside. "I think after learning a hard lesson, we'll see a significant improvement in terms of design, build quality and on the specs ... The question right now is whether this is enough," Maybank Kim Eng analyst Warran Lau told Reuters.

For more:
- see this Samsung release
- see this Samsung presentation (PDF)
- see this Strategy Analytics release 
- see this Counterpoint Research post
- see this WSJ article (sub. req.)
- see these two separate Bloomberg articles
- see this Reuters article
- see these two separate CNET articles

Special Report: Wireless in the fourth quarter of 2014

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