Salvatore "Sam" is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Samsung’s (NASDAQOTH: SSNLF) latest flagship phone, the Galaxy S4, is starting to roll out on carriers around the world. Unfortunately for the Korean tech giant, most of the reviews have not been particularly favorable.
But while most might see this as good news for Apple (NASDAQ: AAPL), it’s actually quite troublesome, since the reviews are evidence of a devastating new trend in the smartphone market.
Samsung set the bar high with its Galaxy S3. Over the last year, the GS3 has become the best selling Android smartphone of all time, and while many have (rightfully so) attacked Samsung for stealing Apple’s innovations, the Galaxy S3’s larger screen size has set the new standard for smartphones.
But unfortunately for Samsung, the company failed to impress with the S4. While reviewers have been generally positive, most have argued that the GS4 fails to live up to the hype.
"I've been testing the Galaxy S4 intensively for four days and while I admire some of its features, overall, it isn't a game-changer...It’s a good phone, just not a great one." (Walter Mossberg, WSJ)"The Galaxy is still a beautiful, high-horsepower Android phone. But basically, it’s an updated Galaxy S3. If this were Apple, who adds the letter S to denote a slightly upgraded model, Samsung might have called this phone the Galaxy S3S." (David Pogue, New York Times)
"I think design matters. Polish matters. The Galaxy S4 is fast and impressive, but it’s also noisy and complex." (David Pierce, The Verge)
There’s a common theme in most of the S4 reviews
But beyond disappointment with the phone’s relatively minor enhancements, most of the reviews have a common theme running through them: don’t buy the Galaxy S4, there’s a better alternative.
Is that alternative the iPhone 5? Nope. Rather, most recommend a rival Android phone: the HTC One.
"While many will compare the Galaxy S4 with the iPhone 5, I also compared it with the $200 HTC One, which came out April 19. The HTC has a handsome, sturdier, aluminum body, dual stereo speakers, an excellent camera, better screen resolution...and twice the base memory for the same price." (Walter Mossberg, WSJ)
"I bought an iPhone 5 because last fall it was the only phone that fit [my needs] -- now there are several Android options as well, and they're good enough to make me want to switch back to Google’s (NASDAQ: GOOG) OS...The One is refined, quiet, comfortable, beautiful, and above all simply pleasant. I love using that phone.... I'll be casting my lot with HTC instead of Samsung." (David Pierce, The Verge)
"HTC’s premium One is the far more impressive phone physically, and has a much fresher interface design to boot." (Jessica Dolcourt, CNet)
The high end smartphone is now a commodity
Prior to Apple’s recent earnings report, I wrote that while the stock looks cheap on paper, looks can be deceiving. Although Apple has a number of products, at its heart, the company remains primarily a seller of smartphones.
Roughly half of Apple’s revenue and most of its profits come from the iPhone. Apple bulls can point to the dominance of the company’s iPad and Mac all they want -- Apple is first and foremost an iPhone company.
And that’s why the reviews of the Samsung GS4 are so damning. A year ago, the iPhone 4S was hands down the best phone on the market. A few months later, Samsung’s GS3 arrived, and finally there was a phone many saw as superior.
For a time, the smartphone market was a two-horse race. Now, that is no longer the case. In addition to competition from Samsung Galaxy lineup, Apple has to compete with HTC’s One.
There’s also Google’s cheap yet powerful Nexus 4, and LG’s Optimus G. Sony’s Xperia Z has received rave reviews in the UK, and Motorola is widely rumored to be working on a revolutionary new “X phone.”
The smartphone market is becoming more competitive than ever
No doubt some loyal fans will stick to buying the latest iPhone. But for those that aren’t tied into Apple’s ecosystem, there will be half a dozen more than capable competitors to choose from.
I am, of course, only mentioning Android-powered phones -- to be fair, there are also an increasing number of similarly capable Windows phones and BlackBerry 10 devices.
While these phones might appeal to some customers, Android will continue to be the biggest threat to Apple’s iPhone. Apple prides itself on being vertically integrated -- Android is notoriously fragmented.
But this fragmentation has its benefits: in addition to competing against the iPhone, Android handset makers have to compete against each other. As in all forms of competition, this leads to innovation and more choices for consumers.
Samsung, for example, has opted to stick as many features as possible into its phones. HTC has gone with an elegant, more unified design. Sony’s Xperia Z is waterproof; the Motorola X phone is rumored to have unparalleled durability.
And while the Android hardware makers work on device features, Google continues to devote resources to improving Android. Although it gives Android away for free, the mobile operating system fits within Google’s strategy: people who use Android are more likely to use Google’s web services.
Google’s focus on Android has already led to a number of key features iOS lacks -- such as Google Now. More are likely to appear when Google updates Android later this year.
Apple’s core business is deteriorating
As evidenced by Apple’s last earnings call, the company’s core business is deteriorating: growth is slowing and margins are compressing. Some investors may have seen Apple's loss as Samsung's gain, but that's a misrepresentation of the situation. Rather, the smartphone market is becoming more competitive every year, taking on the attributes typical of all commodity markets. In that case, no single handset maker -- including Apple itself -- will be able to generate the sort of profits Apple did in recent years.
