Samsung Galaxy S4: Relentless Android product cycle will hurt Apple

In the mobile world, everyone seems to be in a frenzy over Samsung’s next Galaxy smartphone. Apparently, Samsung is the new Apple, where product launches are media events par excellence, marketed to build anticipation. However, while everyone is focused on the Samsung – Apple duel, the launch is verification for me that the relentless Android product cycle will be difficult for Apple to overcome.

Here’s how I put it last month:

Apple want to release a larger phone but can’t because their manufacturing processes won’t allow them to produce in volume. Therefore, they have to delay and suffer through another long product cycle. I have been telling you for months now that doing this would be deadly as Android will take share. Already a slew of Smartphones with 13 megapixel lenses and 5.5-inch 1080i screens are coming out. Samsung is supposed to be issuing a Galaxy S4 phone this Spring with all of the whiz bang features. Apple is in serious trouble.

Again, this is not about Samsung here. It is about the platform Android versus the iPhone platform. iOS is a platform of one manufacturer with a fairly long product cycle. It is squaring off against a platform of many manufacturers, all with equivalent or shorter product cycles. Given that the quality gap has closed entirely, this leaves Apple at a serious competitive disadvantage in terms of its platform. Sure, Samsung has executed well and are now the company to beat. However, from a user perspective the first choice is which platform to buy. Once that decision is made, the specific handset comes into play. All of the Android manufacturers have now released products of similar or higher quality than the iPhone 5. And the sheer variety in terms of screen size is amazing. This means you have a new top of the line Android handset coming out every month, while only one new iPhone appears every year. That’s handsets.

To make maters worse, Apple is also ceding share to Android in tablets. IDC predicts Apple’s share will fall below 50% for the first time this year. So Apple will be losing share in both handsets and tablets this year.

From an earnings perspective, I see earnings contraction for Apple this year. It’s the combination of slower overall handset sales growth, lower product margins and lower market share for Apple handsets. None of this can be compensated for with APple’s other product lines, especially as the iPad is suffering the same margin compression and share loss that the iPhone is.

As for this quarter, Apple always guides low. However their most recent quarter’s guidance is supposed to have been a real number range that management expects to hit, not a lowball figure as it has been in the past. Apparently, some analysts believe Apple will miss even this guidance. If they do, it will be a miss and a contraction in earnings at the same time. The only way the stock can seriously hope to regain momentum is based on guidance. This combination of factors will keep pressure on Apple’s stock despite its being extremely oversold. The key will be guidance. If guidance for the next quarter shows another earnings contraction, Apple’s shares will continue to fall and the focus will turn to the cash on the balance sheet.