Friday, March 15, 2013

AAPL: Samsung S4 ‘Major Issue,’ Says Barclays; ‘Shell Game,’ Says Topeka

The Street today is debating the implications of Samsung Electronics‘s (005930KS) unveiling last night in New York of its next flagship smartphone model, the Galaxy S4, which received warm reviews for features such as its brilliant display and 13-megapixel camera, but which has analysts divided over who serious a threat it may pose to Apple’s (AAPL) iPhone business.

Apple shares today are up $8.31, or 2%, at $440.80 in a down market, helped perhaps by a vigorous endorsement of the stock this morning by Legg Mason‘s Bill Miller on CNBC.

Barclays Capital‘s Ben Reitzes, who has an Overweight rating on Apple shares and a $530 price target,�was at last night’s event at Radio City Music Hall, and he writes today that “In terms of competition vs. Apple, the GS4 seems largely as expected � and there could be some relief for Apple (certain versions of LTE won�t be available until later this year).”

“However,” he adds, “as we stated recently in a recent report � we believe that Samsung�s momentum is a major issue for Apple”:

As a result, we need to see Apple expand its iPhone market this year in a big way � and improve its platform. However, Apple seems rather silent of late � and could be waiting until C3Q to make any competitive response outside of potential adjustments to pricing. We believe Apple is currently making moves that include international expansion, new iPhones and eventually a bigger screened phone in 2014. In mid 2013 we expect the company to introduce both a lower cost (but high quality) iPhone 5 with a plastic case as well as an �iPhone 5S�. Even before that launch, we could see further international expansion for the iPhone. Later this summer, we expect the lower end iPhone to be available globally but be more popular in emerging markets. This product should be priced in the mid tier range � likely at the higher end of the $250-$350 price band. If Apple is to rebound in terms of share, we believe that advances to the ecosystem will be the reason � with potential innovations around payments.

Brian White of Topeka Capital Markets, who has a Buy rating on Apple shars and an $888 price target, writes that “we view the Galaxy S 4 as a refresh but NOT a game changer.”

“We believe the iPhone 5S will handily outsell Samsung’s new flagship smartphone in the second-half of the year, while we believe Apple will expand its world with a lower-priced iPhone in 2013.”

Samsung is engaging in something of a “shell game,” thinks White:

One of the strong points of the Galaxy S 4 is the Full HD Super AMOLED display with 441 ppi, above the 326 ppi found on the iPhone 5 and the 400 ppi on the new LG (066570 KS- KRW79,800: NR) Optimus G Pro. However, the Galaxy S 4 is slightly below the 443 ppi five-inch smartphone introduced by Sharp (6753JP) in 4Q12 with IGZO technology and the 498 ppi display that was shown off at CES. Essentially, we expect competitors to unveil smartphones with a similar ppi this year and ultimately we believe Apple will adopt Sharp’s IGZO display technology [...] We consider the iPhone 5 a work of art and Apple’s ability to deliver a device that came with a larger screen (4-inch vs. 3.5-inch) versus the 4S but one that was 18% thinner and 20% lighter was a monumental task. By comparison, the Samsung Galaxy S 4 is 5 inches vs. 4.8 inches for the Galaxy S 3 but only 8% thinner and 2% lighter. At the same time, the iPhone 5 is 4% thinner than the Galaxy S 4 and 14% lighter. With the iPhone 5S expected to launch this summer, we believe Apple has the potential for even further improvements in this department. Also, polycarbonate (i.e., plastic) casing of the Galaxy S 4 is still no match for the aesthetics of the iPhone 5 with the aluminum unibody enclosure. Samsung’s Smartphone Shell Game Obfuscates Apple’s Share Growth. We are amazed by how analysts and the media have turned on Apple during the recent stock downdraft with statements that Samsung is “out-innovating” Apple. One would believe that Samsung is crushing Apple in the mobile phone market. We believe this is complete nonsense. We believe the smartphone market share comparison between Samsung and Apple is like comparing apples with oranges. When analyzing the mobile phone market in 4Q12 as reported by IDC, Samsung grew its mobile phone unit shipments by 12.3% YoY vs. 29.2% for Apple.

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