The >USD 500 super smartphone segment is the most important, as it is where Samsung and Apple generate most of their smartphone profits. Together, Samsung and Apple’s smartphone revenue account for about 63% of total smartphone industry revenue in 2013, and about 95% of industry operating profit [Profit share is calculated by excluding the losses that tier-2 brand smartphone makers suffer]. Approximately, about 76% of Samsung’s smartphone profits are generated from the >USD 500 Galaxy S/Note series, the >USD 500 segment of Samsung and Apple combined would account for about 84% of total smartphone industry profit.
The >USD 500 superPhone category y-y growth is expected to slow to 1% in 3Q13, from 73% in 3Q12. Most consumers with purchasing power have already bought one of these superphones, and slowing innovation may be lengthening consumers’ smartphone replacement cycle
It is widely anticipated that Samsung’s flagship Galaxy S4 shipments to start falling from 3Q13 (18m units in 3Q13E and 14m units in 4Q13E, from 20-21m units in 2Q13E). We expect flagship Galaxy S/Note shipments to be 31m units at most in 2Q13 and do not grow thereafter. Although we still believe Samsung can start the next innovation cycle with flexible screens, we adopt conservative forecasts until a ‘wow’ factor emerges.
Apple’s last really strong quarter was 4Q12 (driven by the iPhone 5) when it reported results in-line with market expectations; signs of saturation have been apparent ever since. When it comes to the new iteration of iPhones (iPhone 5S and lower-priced iPhone), there is significant dispersion in expectations. This could be an indication of growing uncertainty for future iPhone shipments or speculation of a delayed launch may be an indication of an unclear product strategy – the dilemma of product position.
The Apple Supply Chain Channel Checks indicate no major changes between a lower-price iPhone (dubbed by online commentators iPhone lite, iPhone mini, low cost iPhone, etc) and a regular iPhone (iPhone 5S); theoretically, there should not be any technical issues to delay the product’s launch. There could be cannibalisation of older generation iPhones by ‘iPhone lite’, but sees limited impact on the new iPhone 5S, as regular iPhone buyers have relatively low price sensitivity and a high appetite for the latest, best model; they should, as such, not be attracted to the iPhone lite.
Further, Apple supply chain have indicated there is no working fingerprint authentication function as yet or integrated touch controller IC (regardless of whether there is consumer demand for these functions), as there has been widespread speculation about iPhone 5S carrying Fingerprint Recognition technology.
We expect the mid- to low-end segment growth to remain high, leading to overall smartphone unit growth. We expect the