Android's dominance cements Samsung's place ahead of Apple as world's biggest chip buyer

Android's dominance cements Samsung's place ahead of Apple as world's biggest chip buyer

Summary: The popularity of low-cost Android smartphones helped Samsung retain its position as the world's top purchaser of semiconductors, staying ahead of Apple. But which company is better placed for long term success in the smartphone market?

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TOPICS: Mobility
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The popularity of low-cost Android handsets in the smartphone market helped Samsung further increase its lead over Apple as the world's largest purchaser of semiconductors.

Samsung remained the number one buyer of semiconductors for the second year running, spending more than $30.3bn, an increase of 20.7 percent on the previous year, according to figures from analyst house Gartner. In comparison Apple spent $23.4bn on semiconductors during the same period, an increase of 11.8 percent on the previous year. Together Samsung and Apple increased their combined semiconductor demand by 17 percent.

Apple's smartphone market share was eroded in the first three quarters of 2013 by handsets from Samsung and emerging Chinese smartphone vendors, according to Masatsune Yamaji, principal research analyst at Gartner, author of the report into semiconductor sales.

"It [Apple] rallied with new models in late 3Q13 — the iPhone 5S and iPhone 5C. The iPhone 5C is the first model with which Apple has tried to gain market share in the affordable-price market, but it is still struggling in this segment," he wrote in the report.

Android handsets accounted for more than 80 percent of the smartphones shipped in the third quarter of 2013, according to research firm Strategy Analytics. During the same period Apple saw its market share drop from 15.6 percent to 13.4 percent.

Samsung is selling large volumes of Android handsets into the low-end smartphone market, focusing on sub-$400 phones – such as the Galaxy Ace, Duos and Neo - according to Gartner research director Roberta Cozza.

"Samsung, of late, has been a lot more aggressive in the lower end, which is where we believe that volumes will really come from, because the very high end of the market is slowing down as it's a saturated and mature market," she said.

"It's what is helping them to drive volumes but at the expense of profitability, as we've seen from their latest earnings."

Samsung said earlier this month that it expects to record an operating profit of 8.3 trillion won ($7.8 billion) for the fourth quarter of 2013, an 18 percent drop from the previous quarter's record earnings.

Cozza also warned that Samsung faces a challenge in holding onto its fast-growing user base.

"The vendor that can ultimately be the winner is the vendor that will deliver the best experience to their users. Apple is doing this with their ecosystem, while Samsung is challenged in providing that.

"In order to build loyalty across their devices Samsung will need to do something more, which I think will have to come from the software and services side, probably from acquisitions, which I think it's time for them to look into," she said.

In the fourth quarter of 2013 Apple posted a quarterly net profit of $7.5bn, having sold 33.8 million iPhones, compared to 26.9 million during the same quarter the previous year. Apple also sold 14.1 million iPads during the quarter, compared to 14 million during the same quarter in 2012.

"In 2013, total semiconductor demand from the smartphone and media tablet markets surpassed demand in the PC market," said Gartner's Yamaji.

"However, this consumer shift has caused a substantial decrease in total semiconductor demand over the last two years because there is far less semiconductor content in a smartphone and a media tablet than there is in a PC."

semiconductorsales
Top 10 semiconductor buyers as determined by design total available market (millions of dollars). Image: Gartner

Not everyone agrees with Gartner that Samsung was the company that purchased the most chips last year.

Technology consultancy IHS released figures today that showed Apple as the world's largest buyer of semiconductors.

According to IHS, "Apple was in first place with chip spending in 2013 of $30.3bn, outspending runner-up Samsung's $22.2bn by more than $8bn".

IHS uses a different dataset to Gartner to calculate semiconductor spending, the served available market (SAM). The SAM counts only expenditures that an OEM made as an external agent and does not factor in spending by manufacturers for chip buying done at their own internal divisions.

China rising

According to Gartner eight of the top 10 semiconductor buyers for 2012 remained in the top 10 in 2013, with eight of the top 10 also increasing their semiconductor demand in 2013. Lenovo climbed to number four in 2013 due to its market share growth in the PC market, as well as the great success in the Chinese smartphone market.

Chinese IT giant Huawei made the top 10 buyers list for the first time this year.

Gartner said that Chinese electronic equipment manufacturers will continue to increase their semiconductor demand with their growth, driven not just by demand from their domestic markets, but also by strong demand from other emerging markets, such as Latin America and Africa.

The top 10 companies bought $114bn of semiconductors, which accounted for 36 percent of semiconductor vendors' worldwide revenue in 2013. This was up from $105.1bn, accounting for 35 per cent, in 2012.

Topic: Mobility

About

Nick Heath is chief reporter for TechRepublic UK. He writes about the technology that IT-decision makers need to know about, and the latest happenings in the European tech scene.

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20 comments
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  • The death of Apple is looming

    The momentum gained by Samsung in the smartphone market ought to be a reminder that Apple is being eaten up!....The I phone 5c is struggling, the research and development at Apple is declining, do I need add more???I have always had this feeling that the guys at Apple lost their thrill in terms of innovation. Its unfortunate that the sexy demeanor employed by Steve Jobs has gone to an all time low. Samsung has undoubtedly dwarfed Samsung in the research and development category. Its a matter of time before Apple is dislodged from its top position.
    cartermurithi
    • You are only seeing half the picture

      Apple's profits are steady with each new phone they sell and the Chinese market is just opening up for them. Samsung has made less profit per phone with each new cell phone version they produce and have acknowledged this death spiral, this is why they are pushing so hard to establish their own OS flavor and revenue stream. Now Apple needs to kick thier innovation in the rear and I don't know if Cook is the guy to do it but they are a very profitable company.

      "Samsung said operatings profits between October and December fell 18pc to 8.3 trillion won (£4.8bn) from the previous quarter's record earnings, missing analyst estimates.
      The South Korean electronics giant is bracing itself for its weakest smartphone profit growth this year since it started making the devices in 2007, as rival Apple challenges its domination in China's $80bn market."

      So which boat would you rather be in long term?
      KBabcock75
      • The answer is very simple: Samsung...

        Using the "boat analogy" of yours...

        Apple has been riding the same boat for seven years now, and the only "improvements" have been mostly cosmetic, and the boat looks beautiful and stunning, while still providing the same kind of experience as it did in 2007.

        On the other hand, Samsung has committed itself to a lot more R&D than Apple, and...

        Samsung has been able to produce boats of many different varieties, and of many different price ranges, and of many different looks, and the improvements of the boatS have been in a lot of areas, other than in the beautification of them.

        When looking at what the future might bring, don't look at the current state of things when it comes to revenue and profits. The future is a lot more than more of the same, and the same can become lame in a very short period of time.
        adornoe
        • Apple loosing frends

          Geeks are moving from iPhones in droves. For example, take crpyocurrencies; the hottest thing in IT right now. Apple have shut the door on that.

          Then there is the NSA. Closed operating system, on American designed hardware. I know Android is not exactly immune, but Apple is seen to be of the highest risk.

          Developing countries. Android will win here big. Cheap smartphones, will become so cheap, Apple would never get anyway near.
          stuorguk
  • I'm so glad

    That my wife dumped her Samsung Android smartphone for a Nokia Windows 8 phone. It's so much better, more intuitive, easier to use, faster, etc.
    bb_apptix
    • Working hard

      Microsoft sales department hard at work. lol
      chazz422
  • At the expense of profitability.

    And that, folks, is all you need to know. Because in this game, profit is how you keep score. If you have good profits, you have the money you need to grow the business, research products, lock in deals and contracts, etc.
    baggins_z
    • Samsung made more profit than Apple did in 13Q2 and 13Q3

      Just pointing out the flaw in your new measurement of why Apple is better, but there you go.
      Emacho
      • but Samsung made much less profit

        on their handsets than Apple did and Apple still dominates the high-end of the phone market where they want to be. And let's not mention tablets shall we? Fact is that Samsung is a bigger company than Apple.

        Just pointing out the flaw in your new measurement of why Samsung is better, but there you go.
        paddle.
      • Better look a little closer

        Samsung's reported profit is operating profit, Apple's is net profit. These are not the same.
        pauljones99
        • how much profile a company makes show u r u getting the best phone

          it shows u they r selling u a phone with low end components. in fact
          if google makes less on nexus 5 and sells it for cheap. that makes sense both
          snoonw
          • Market share is a more meaningful measurement, for the long road, than

            the profits on a per device basis.

            I'll bet you won't be able to understand why market share matters more.

            BTW, "less expensive" does not necessarily equate to lower quality or less capabilities. Why would somebody pay $800 for a device which will be used for 2 years, while a lower priced device at $100-200 can provide the same functionality for the same 2 years. Remember that, a smartphone is only a means to access the services available on the internet and in their corresponding apps stores. So, why would a $800 device be needed to perform the same functions as a $200 device? Makes no sense whatsoever.
            adornoe
          • Value

            Value is what you get for what you spend.

            On the high end, Apple really gives you a superior product with much better fit and finish, and at the end of your use cycle you can pass it on to family or friends or sell it to third parties, as opposed to a Samsung phone which is basically trash by that point.

            In addition, along the way you've had a superior ecosystem with everything from media to the latest apps.

            On the low end, Apple isn't present at all. These are basically feature phone replacements and for all the rah raging about Android, they are basically used like feature phones - favored by carriers since they can charge for a data plan and not have to supply the network infrastructure since they aren't *used* like smartphones.
            varase
    • Apple is spending a lot less in R&D than Microsoft or Samsung or Google,

      and that can only hurt in the long run.

      Current revenue and profits is not a good indicator of where a company is headed. Remember that, Palm and RIM seemed entrenched several years ago, and lack of innovation did them in, and they responded very late, and could not make a comeback. Apple is nicely profitable right NOW, but, they are failing to "innovate"; and no, 64 bit processors is not innovation, since everybody is already headed that way with mobile. There is nothing right now, other than good profits, to separate Apple from the crowd, and in fact, the crowd has overtaken Apple in the innovation side. If MS wasn't spending as much as they are in R&D and in positioning their new devices and software and services, they could show profits comparable or better than Apple. R&D budgets can eat into the bottom line, and Apple is careful in their R&D spending, believing that they can ride their current products for a long time. They could end up paying a very hefty price for the lack of vision.
      adornoe
      • R&D Spending

        Apple has *always* spent less than competitors on R&D.

        I think I saw an estimate that the original iPhone was developed for something like $100M, which is pocket change for someone like Microsoft who would've spent billions. OTOH, Apple produced a whole new category of device which disrupted countless industries, whereas Microsoft ended up with Windows Phone 8.
        varase
  • Nokia Profit

    Nokia loses on each phone. So long as Microsoft can stomach that, OK, but when you add Bing and Xbox and Windows 8 Microsoft is a big loser.
    nick@...
    • Where do you get your finacial infro from, Nick?

      Sesame Street?
      William.Farrel
  • Diversification

    If you are thinking long term then it makes sense to take the impact of how well diversified a company is. If you look at apple, they are tied, (like microsoft), to ios and its iterations such as the iphone, ipad, ipod,etc. Samsung is more diversified. The make memory chips, screens, hard drives, phones, washign machines etc.
    Short term, I would say apple is the best investment but with the risk that a one trick pony could send you to the finish line or topple. Long term, a diversified company that not only makes stuff for others (including apple, microsoft, and google) and for itself would be a better risk. I don't think you will see blazing profits (because one part always pulls down other parts) but you get a steady gallop to the finish line with a lot less risk.
    rgor@...
  • Samsung will exist until the end of humanity.

    So will other well-diversified companies like General Electric, LG, et. al.

    However, I have a feeling that Apple is going to be around for a very long time thanks to the ongoing popularity of the iPhone and iPad. Apple proves, time and time again, that you don't need 20 different models of the same thing to sell well in this market.
    Champ_Kind
    • Not true at all...

      Smartphones were "good enough" for what most people used them for before the iPhone came along. Most smartphones are good enough NOW, for what most people use them for. iPhones are not materially, nor functionally, different or better than the competition. Apple's lack of innovation will eventually turn them into the latest Palm or RIM. 7 years ago, nobody could've foreseen the day when RIM would become immaterial, and the same could have been said for Palm; they were both very entrenched as the market leaders in mobile technology. Apple is running the risk of thinking the same way, and believing that they can ride the iPhone and iPad for several more years, will be their undoing.
      adornoe