Samsung has a lot of momentum, a new Galaxy S4 on tap and appears to be poised to tackle the mid-tier smartphone market. As a result, Apple needs to answer the bell in a hurry, according to analysts.
Despite all the scuttlebutt about Apple's lower-priced iPhone and how important it is, the bigger issue is why the company needs to hit that lower-end market hard: Samsung.
In a research note, Barclays analyst Ben Reitzes summed up the Apple vs. Samsung issue well. He said:
Samsung is on its way toward successful launches of mid-tier smartphones (i.e. Galaxy S3 mini and Galaxy Grand) – an area in which we believe Apple needs to be by the end of the summer to remain competitive. To say that the Samsung momentum is an issue for Apple is an understatement. Not only is Samsung helping its own cause, but it catalyzes Android as well. As a result, we need to see Apple expand its iPhone market this year in a big way – and improve its platform in 2013.
Last week, Apple CEO Tim Cook noted that the smartphone market is huge and the company has a lot of running room to grow. The one monkey wrench in that master plan would be Samsung.
Reitzes largely agreed with Cook. Reitzes said that Apple can regain momentum with iPhone deals with NTT Docomo and China Mobile and launch a lower-cost phone and even a phablet.
The analyst added:
We believe Apple is a platform company and its next great innovations have to come in the form of software and web/data services. We believe these services are needed to keep Apple’s ecosystem ahead of the pack and to attract and retain more users. We believe Apple needs to up its game in web services and platform integration to compete with Android and Samsung. We are hoping to see the seeds of this innovation when the company previews iOS 7 as early as March in an iPad launch event.
That March timeframe is also critical for Apple given that Samsung is likely to launch the Galaxy S4 in mid-March and ship it in April. Apple lacks at 5-inch screen and that's part of the reason Barclays expects the Galaxy S4 to do well.
Meanwhile, the lack of a 5-inch screen is a weakness for Apple, said Reitzes. The catch is that Reitzes doesn't expect Apple to have a larger-screen device until 2014.
In the meantime, Apple's primary focus is likely to be an emerging market iPhone. Morgan Stanley analyst Katy Huberty said that an iPhone mini from Apple at about $330 would be able to compete with Lenovo, Huawei and ZTE in China, which now has a 3G network that could handle data traffic better.
Should an iPhone mini launch, Huberty said that Apple's addressable market in China would triple.