Samsung Galaxy S3 is bigger than iPhone 4S in Q3. Wake up, Apple. Free ride is over, time to compete for real

According to Strategy Analytics, Samsung has shipped more Galaxy S3 flagships than Apple shipped iPhone 4Ss in Q3. Estimated 18 million vs 16.2.

This should come as a serious wake-up call for Tim Cook, if Apple wants to hang on to the gains it made in the smartphone market over the last 5 years.

Yes, Apple still makes the best smartphone. Yes they still rake-in the largest part of mobile industry profits. Yes, if we look at the sales over the whole product life-cycle – iPhone is still the single best selling smartphone.

And yes, Galaxy S3 was able to beat iPhone 4S in Q3 only due to unique set of circumstances. iPhone 4S was already nearing its end as Apple’s flagship, and everyone was anticipating the launch of iPhone 5 all through the latter part of summer. Furthermore – iPhone 5 was announced in September, further eating away at 4S sales during the last 3 weeks of the quarter. While for Samsung, Q3 was probably the best time to sell Galaxy SIII. For most of the quarter it was the one and only flagship, without the distraction of updated Galaxy Note 2. It’s main competitor – iPhone 5 – wasn’t there yet, too. And Samsung, as the main sponsor of the Olympics, had a huge Galaxy S3 marketing campaign underway.

With all that, Apple still managed to sell 16.2 million of aging iPhone 4Ss – not much less than Samsung’s 18 million Galaxy S3s.

It doesn’t matter.

For Samsung to be able to beat Apple’s flagship iPhone with just a single smartphone model, is a huge milestone.

Remember how things played out in the overall smartphone vendor rankings over past year? Apple has been way bigger than Samsung for a long time, and, with the fall of Nokia became #1 smartphone maker in the world in Q2 2011. Then, Samsung caught up with Apple in Q3 – its weakest quarter, just before iPhone 4S launch. In Q4, boosted by the new iPhone sales, Apple handily cleaned Samsung’s clock and got back to the top of smartphone maker list. To remain there… for the whole 3 months. After which Samsung increased its speed and left Apple in the dust, as far as smartphone shipments are concerned.

The third quarter of this year looks eerily similar. No smartphone, including Galaxy S and S2, could even approach iPhone in unit volumes shipped, for years. But now Samsung has done it with Galaxy SIII. There’s a very good chance, that Sammy flagship’s reign as most popular smartphone will be very short. With iPhone 5, Apple will retake the best selling device crown this quarter. And may even keep it in Q1, boosted by Chinese New Year sales, while Galaxy fans start anticipating S4 this spring.

But after that? Galaxy S IV, when it’s released sometime in Q2 2013 will sell even faster than S III, and, will retake best-selling smartphone crown even sooner. Only come Christmas, I am not sure Apple will be able to beat new Galaxy sales volumes with iPhone 5S refresh. It may very well be that overall Galaxy S4 sales will surpass iPhone flagship sales by mid 2014.

Unless Apple gets off its butt, and starts really competing in smartphone market as it can, did and does in music players, tablets and PCs.

After inventing app centric multi-touch UI based smartphone, Apple had a great and very profitable 5 year run. Steve Jobs was right about how far ahead of the competition the first iPhone was. It really took everyone else 5 years to catch up.

Insulated by this huge lead, in a market rigged by long-term carrier contracts, Apple had the luxury to develop its iPhone at a leisurely pace. Releasing a completely new device every 2 years, with an interim refresh in the middle. And charge a huge price for it, with us not really noticing, because the real costs were hidden by carrier subsidies, recouped via high monthly data fees.

But guess what? Samsung beating Apple’s flagship in sales with a single device, if only for a few months, means that competition has almost caught up.

Up until now, carriers were happy to subsidize and push $600 iPhone harder than anything else, because iPhone owners browsed more, used more data and paid more in monthly fees. Not anymore. There might be some annoyances, but Samsung’s Galaxy S III is as good device for everything Net as iPhone. Android app ecosystem is almost as good as iPhone’s. Boosted by huge marketing budget and happy customers, Samsung’s Galaxy smartphone brand is also growing fast. And, as Q3 numbers show, carriers are already pushing Sammy’s flagship almost as hard as iPhone.

Looking at incredibly low unsubsidized retail prices for Galaxy S3, makes me think they are also spending much less on S3 subsidies,while recouping about the same on monthly fees. Which means that come the next round, Samsung Galaxy S IV may actually become their preferred device.

The good, wildly profitable and easy days in smartphone market are over for Apple. It’s time for them step up the game and start really competing. Beginning with that leisurely product update cycle geared to the two-year carrier contracts. Samsung already has 2 major highly profitable flagships a year. Galaxy Sx in spring, Galaxy Note x in autumn. There is no way Apple will be able to keep up with Samsung by releasing 1 major new product every 2 years, with 1 incremental update in the middle. One or two sizes of iPhone do not fit us all. Neither do only $100 discounted last year’s models at lower price ranges. Apple will have to release more models in more sizes and prices, with more frequent updates, if it wants to keep up. And the huge margins Apple is able to extract from the iPhone at $600+ average selling price, will have to come down, too.

Despite carrier subsidies, there’s nothing inherently special about the smartphone market, compared to, e.g. tablets, PCs, music players and other CE categories. When you invent something, you get a good head-start, premium and profits for a while. Ever wonder why Galaxy Note is so expensive? Not because it cost so much more to make than Galaxy S3. There’s no real competition to the Note yet, so Samsung can afford to charge more. As soon as phablets from LG, HTC and others start getting traction – Note prices will come down.

The only real surprise about iPhone, was how a big head-start Apple had with it. Now that it’s almost over – Apple has to start competing in smartphones, just as they do in all other markets.

I hope Apple isn’t too attached to the fat iPhone margins and dominant smartphone market profit share. Because they are a very fickle things. Do you know who had a seemingly unassailable position, best margins and collected the lion’s share of mobile device industry profits until 2007? Nokia.

Apple still has huge design, integration, scale, manufacturing, distribution and brand advantages over everyone else. If they start treating iPhone like they do their tablets, Macs and music players – we all, including Apple, will be better off in the long run.

Author: Stasys Bielinis

While I like to play with the latest gadgets, I am even more interested in broad technology trends. With mobile now taking over the world - following the latest technology news, looking for insights, sharing and discussing them with passionate audience - it's hard to imagine a better place for me to be. You can find me on Twitter as @UVStaska'

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  •ágyi/100001770630008 Atty Halmágyi

    Samsung is becoming more and more famous. Good job! 🙂

  • Dan

    Umm. Apple cannot and will not hold on to its lead as much as it wants to. Fact is, Apple can only serve and cater to one section of the market. It is finding it hard to even service existing users anymore. I dont think Apple has any problems of selling. More about Apple not being able to produce enough iPhone 5s for the holiday season which will affect their bottom line. Either way, The market is now Samsung vs Apple. Apple takes the holiday and next quarter, Samsung the next 1-2 quarters (it still hasn’t but maybe in 2013)

  • Idon’t Know

    Shipped not sold

    Samsung reports shipped and Apple reports sold to individual actual people. A lot of those Samsung shipped phones are sitting on shelves and in warehouses.

    Samsung is the only Android manufacturer not losing money yet they won’t report their number sold or revenue. Thats because its not very much and Apple profits dwarf theirs.

    You are wrong about the carriers. They have pushed Android more for some time because they pay less for them and can load them up with bloatware increasing their profit margins. Also they want the opposite from what you say..they want less usage of their networks not more.

  • Idon’t Know

    That is complete nonsense.

  • Staska

    “Samsung reports shipped and Apple reports sold to individual actual people…”

    Please get your facts straight. Apple, like Samsung and everyone else in the consumer electronics industry report sales into the channel , not the end sales to actual customers. Those sold (as per official report) Apple products, sitting in distributor warehouses are called “channel inventory”. Apple usually has 3- 6 weeks worth of iPods, iPads, iPhones and Macs sitting in partner warehouses, and already recorded as sold. Don’t believe me? Maybe you;ll believe Tim Cook:

    Carriers want to earn more profit per customer. That’s it. iPhone used to, may be still does generate more profit per customer than Android phones. Enough more profit to cover higher subsidies and still be attractive to carrier. I am arguing that those days are coming to an end next year or in 2014.

    There may still be some residual effect of customer churn because of not having iPhone. But, except for U.S., I think that this iPhone effect is decreasing also

  •ágyi/100001770630008 Atty Halmágyi

    Please explain the meaning of what you said:”report sales into the channel”. What do you mean by channel?

  • Staska

    Bulk sales to big distributors/partners, e.g AT&T, Verizon, Best Buy, Walmart, electronics wholesalers, etc;

  • arrow2010

    Apple’s free run in smartphones is over. Their free run in tablets is just about over as well. The iPad doesn’t have the same competition until Haswell-powered tablets hit the market in 2013.

  • MigyWPB

    Oh please “Apple still makes the best smart phone” don’t make me laugh. People is getting tired of Apple BS no innovation and bad management. The IPhone 5 is just a good looking phone but to say that is the best NO WAY. And ask to Apple,s fun what they think about the release of the IPad 4 that is 2X faster than the IPad 3 and just 7 months after. A lot of people is peesed for this because they got their IPad 3 few months ago and now is an old model lol. Really smart Apple.