Diverging fortunes: high prices propel Apple, sink Samsung
Exclusive software and new features prop up iPhone while Galaxy S9 fails to impress
Apple Inc. and Samsung Electronics Co. entered the second decade of the smartphone era by betting on super-high prices for their flagship products. One year in, that strategy has energized Apple but sapped Samsung’s sales.
The Silicon Valley company on Tuesday announced a third consecutive quarter of record iPhone revenue as strong demand for its $999 iPhone X helped lift average iPhone selling prices 20% to $724 during the three months ended in June.
Just a day earlier, Samsung announced its smartphone profits cratered, as fewer buyers were willing to shell out the nearly $1,000 the South Korean company wanted for its flagship Galaxy S9 handset. Its average smartphone sold for about $220 in the most recent quarter, analysts said, brought down by the lower-cost phones it sells alongside its pricier iPhone competitors.
The results illustrate the diverging fortunes of the world’s most profitable smartphone companies as they sweat out a contracting industry with fewer buyers eager for the latest gadget.
Apple, whose stock was up more than 4% on Wednesday, has navigated the slowing market by leaning on its premium brand, new features and exclusive operating system to command record prices—even as unit growth barely grew, analysts say. But Samsung’s price increasing didn’t stick, as flagship Galaxy S9 sales slipped and unimpressed consumers turned to lower-priced devices from Android rivals.
Adding insult to injury, Apple appeared to gain market share from Samsung during the second quarter, with iPhone share rising to 12% from 11% from a
year ago as Samsung dipped to 20% from 22%, said Neil Mawston, an analyst with Strategy Analytics.
“Apple got people to upgrade in a way no one has done before, moving them up the price curve with a design that was radically different from its predecessor,” said Patrick Moorhead, president of the technology firm Moor Insights & Strategy. “Samsung just hasn’t been as effective.”
Apple and Samsung jacked up prices last year for their most advanced phones as people began holding on to their devices longer and as fewer new, highend buyers came into the market. The smartphone market has largely become saturated, especially in the U.S. where there is nearly one smartphone for every person, according to IHS Markit, a research firm.
With the iPhone X, introduced last September, Apple sought to create a superpremium product. It justified that price by adding features like facial recognition and its first organic light-emitting
diode, or OLED, display. The features suggested customers would get some extra utility out of the new, high-price device, analysts said.
Apple has a long record of charging more for its products, and the company’s consistent presence among the very top brands world-wide has helped justify those prices. However, its biggest advantage has been its position as the only seller of devices featuring its iOS operating system.
The iOS monopoly means users who switch to a rival device would have to learn a new system and potentially give up some stored information, analysts say. Those deterrents help the company retain some 92% of iPhone owners who upgrade to new devices compared with Samsung’s retention rate of 77%, according to Morgan Stanley.
During a call with analysts Tuesday, Apple Chief Executive Tim Cook said the success of the iPhone X validated the company’s pricing strategy. “We priced
it at a level that represented the value of it, and we could not be happier that it has been the topselling iPhone since the launch,” Mr. Cook said.
Samsung sounded a different note with analysts, saying its next handset, the Galaxy Note 9, would be offered at “reasonable prices.” Though the company beat Apple to market with a larger phone display in 2011 and added an edge-to-edge screen to its devices in 2017, its Galaxy S9 looked similar to its predecessor, the S8, and offered similar features, causing some consumers to question upgrading, analysts say.
The South Korea tech giant also doesn’t use an in-house operating system, instead relying on Google’s Android—which runs more than 80% of the world’s smartphones. That has made Samsung susceptible to stiffer competition from Android rivals.
Samsung has vowed to fight back by pushing future breakthroughs, such as new phone designs and handsets equipped
for fifth generation, or 5G, wireless networks. The Wall Street Journal reported last month that weak Galaxy S9 sales have driven the company to aim to deliver a foldable-screen phone by early next year.
That phone won’t drive volume, “but it’s definitely a brand driver and that’s what Samsung needs,” Mr. Moorhead said.
Though Apple has proved more successful than Samsung at raising prices, analysts say continued success hinges on the iPhone maker’s ability to entice consumers with new features.
They expect Apple to launch three new handsets this September: an update to the iPhone X; a plus-size iPhone X; and a new 6.1”, LCD device that features facial recognition.
Apple, though, risks jeopardizing future sales if it keeps boosting prices, causing consumers to hold on to their iPhones. That “may bite them in the butt down the line,” said Wayne Lam, a smartphone analyst at IHS Markit.