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Bad Blood: Apple vs. Samsung

Apple and Samsung Electronics just don't seem to be able to get along. Apple under Tim Cook has become choosier about picking its fights, but the company shows no signs of wanting to settle with Samsung as they continue to battle over smartphone and tablet buyers.

The bad blood between Apple and Samsung is turning into a classic tech battle. The two companies continue to duke it out in stores and courts, while their component relationship has seen better days.

"It is a close and well-fought battle," says Neil Mawston, executive director at market research Strategy Analytics.

That Apple fights on with Samsung, but settled with HTC makes sense. In stores, Samsung is without a doubt the single biggest threat to Apple, according to Ben Wood, director of research at CCS Insight.

"The recent settlement with HTC signals that Apple is becoming choosier about picking its fights ... On the flip side, Apple shows absolutely no signs of wanting to settle with Samsung," Wood says.

For HTC, having the distraction of ongoing litigation every time it puts out a new product or launch in a new market has been extremely unhelpful for its business, according to Wood. Apple possibly settled in order to better position HTC against Samsung, he says.

Samsung took advantage of the announcement by getting a court in California to force Apple to produce documentation detailing the settlement, claiming it is relevant to its own patent dispute with Apple.

However, the documents detailing the agreement will only be available to the attorneys in the patent lawsuit.

Outside the courts, Samsung has taken competition in the smartphone market to a new level this year. Thanks to the success of the Galaxy S III -- which was the best selling model during the third quarter -- Samsung is now catching up to Apple's share of profits, according to Mawston.

"Samsung and Apple, globally in the third quarter, accounted for 98% of the profits in the mobile phone industry ... Apple's share is 52% and Samsung's 46%," he says.

Apple's iconic brand and exceptionally strong product portfolio in the high-end complement its excellent distribution system.

"Even if consumers think there are other companies that can offer them different or better features, they still feel very locked into the iPhone while at same time loving the familiarity it offers," Wood says.

Samsung also has a strong brand; strong distribution worldwide; good pricing and excellent component sourcing, thanks to the fact that the company makes many of its own components. But above all, it has a product portfolio that covers all segments, according to Mawston.

The competition between the two companies could get even more venomous next year, if Apple were to launch its long-rumored TV set.

What sets the Samsung and Apple battle apart from others is their component relationship; Samsung remains the manufacturer of the processor for the iPad mini, the iPad and the iPhone 5.

Severing the ties completely could have negative repercussions for both companies, Wood and Mawston agree:

"Apple is a phenomenally important customer on the component side. In order for Samsung to remain a leader it has to invest an enormous amount of money in R&D, and the company can't do that just selling to its own mobile phones," Wood says.

"Apple gets good quality components from Samsung, so it may find that components from other vendors aren't as reliable. The recent display problems may have been one example of that," Mawston says.

Neither Apple nor Samsung is invincible. Samsung may be the second largest tablet vendor, but its products haven't been as successful as its smartphones.

"It is still chasing Apple," Mawston says.

Also, success in the enterprise smartphone space continues to allude Samsung.

"The big problem is that Samsung has such a strong focus on Android, which enterprises are not especially fond of," says Leif-Olof Wallin, research vice president at Gartner.

Apple, on the other hand, is heavily dependent on operator subsidies.

"If operators were to remove their subsidies over night Apple's shipments would go down very quickly," Mawston says.

The company also doesn't have a phone for the low-end pre-paid segment of the market.

The 2013 smartphone wars will be between Apple and Samsung during the first half of the year, at least.

"It is an event driven market ... If Samsung and Apple don't execute well on upcoming products plenty of competitors will be ready to pounce," Mawston says.


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