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It's hard to escape the media pronouncements that iPhones are now boring again after Samsung unveiled its latest Galaxy S8, Apple's Mac business is being overshadowed by more exciting Surface Windows PCs from Microsoft and that Apple Watch is a disappointing dud. But all of those media narratives are wrong, here's why.
This first segment in a series takes a look at real data, with enough historical context to accurately see what's occurring in the Pre-Mobile PC and Post-PC Mobile and Wearables markets. Reality bears little correlation with media narratives that suggest doom for Apple and portray its hardware and software rivals as quickly catching up.
Virtually every element in the common media narratives hyping 1) Samsung's scrappy underdog rivalry with iPhone, 2) Microsoft's growing Surface threat to Macs or iPads and 3) the minor relevance and impact of Apple Watch is purely false. It's not only illuminating to see the truth, but also revealing to see what lies are being passed around as fact.
First, consider the reality of Samsung Mobile and its true market position relative to Apple— in stark contrast to the way the company is portrayed in media narratives.
1: Is Samsung serious in software?
Steve Jobs loved the 1982 quote from Xerox PARC's legendary computing pioneer Alan Kay, "people who are really serious about software should make their own hardware."
Apart from being "serious about software," there are also other reasons to build hardware. Ask Samsung, a company that is so seriously terrible at software that even many of the company's most ardent fans wish it would just ship phones with an un-diddled with version of Google's Android instead.
Google itself has worked to fix "a substantial number of high-severity" and "trivially exploitable" flaws in Samsung's Android flagships. The most common complaint regularly targeting Samsung's Galaxy hardware has been its bloatware features and apps that don't really work. And who could forget Samsung's own attempt to create a platform OS with Tizen, which ended up a total "worst code I've ever seen" turd sandwich?
Samsung's asymmetrical skill set in designing fresh hardware but terrible software has cost it dearly in the commercial race to profit from smartphones
Despite its incredible lack of aptitude in software, Samsung successfully sells nearly half of the world's utilitarian Android devices and— quite remarkably— has been considered to be on the forefront of a series of new hardware ideas.
Samsung is often credited with popularizing large-format smartphones, was among the first to deliver water resistance, credits itself with creating the wrist-phone smartwatch and over the last two years has introduced future-forward looking phone designs with OLED edge screens and minimal bezels.
Samsung's asymmetrical skill set in designing fresh hardware but terrible software has cost it dearly in the commercial race to profit from smartphones.
Samsung is a surviving incumbent, not an underdog
Particularly since 2010's Galaxy S, Samsung has been portrayed as the leading Android maker, heroically fighting to take away Apple's iPhone crown. But the reality is that when Apple introduced its first iPhone in 2007 Samsung had already been in the smartphone business for half a decade— at least on the hardware side.
Back in 2001, Samsung licensed PalmOS to build a press-screen phone for Sprint (above left). While Apple appeared focused on building iPods from 2001-2006, Samsung (which produced many of the components Apple used) licensed Microsoft's Windows Mobile to build a basic button smartphone that attempted to look like a Blackberry (above right).
This knockoff BlackJack was much cheaper than the new iPhone and featured a superior camera. However it was destroyed by iPhone in the market, largely due to Apple's far more attractive software. Samsung also tried Symbian and Java ME and then Android, where it finally discovered a hit with the 2010 Galaxy S that shamelessly sold itself as nearly being an iPhone.
However, Samsung didn't particularly love Android. Just as its Galaxy S (below left) sales began taking off, the company unsuccessfully devoted efforts to popularize its own new Bada platform, which was later folded into Tizen. It also even took additional scattershot stabs at trying to sell successive releases of Windows Phone (such as the ironically-named Focus, below right).
It sure seems that Samsung isn't just bad at software, but actually has no particular interest in or appreciation of software and its value. In fact, that's the only real explanation of how Samsung managed to completely squander its five-year head start in smartphones. Failing to appreciate the value of something also tends to make you not very good at maintaining it.
It sure seems that Samsung isn't just bad at software, but actually has no particular interest in or appreciation of software and its value
Three years after iPhone launched, Samsung's greatest success came from four years of desperately copying it (Galaxy S through S4).
Since 2015, Samsung has embarked upon a somewhat more original hardware focus (Galaxy S5 through S8), but its unit sales have never recovered to 2014's Peak Samsung levels.
That's a pretty stark timeline of events that's hard to argue against: as long as Samsung was illegitimately copying Apple's software as closely as it dared, it performed pretty well. When it attempted to make its own hardware the star of the show, popular interest faded and its profits fell dramatically.
Hardware alone doesn't build a lasting business, something Samsung could have learned just by looking at Palm, Blackberry, HP or any of the many other companies it was so closely studying in other respects.
Samsung's Siri-ous screwups
Samsung has attempted to acquire its own software talent, most famously when it snapped up Viv Labs last year, a startup purported to have developed the next generation of voice assistant technology, from the same team that introduced the Siri app Apple acquired in 2010. Despite six years of gestation, however, Samsung couldn't distill a superior service out of Viv in time for the Galaxy S8.
Instead, according to the Wall Street Journal, Samsung reverted to the code of its languishing internal S Voice project, which it spruced it up under the name Bixby. Despite devoting much attention to Bixby at the S8 unveiling, it ultimately could not get the service working well enough to include at launch in the U.S.
Samsung knows that the premium tier is where virtually all the money is made in smartphones. Yet in the intensely competitive market— where it is pressed between Apple's aspirational iPhone and a series of much cheaper Chinese competitors— it screwed up the most prominent software it chose to associate with the launch of its new flagship.
It also slopped out a pointlessly insecure face unlock on the S8, hot on the heels of deploying another acquisition, last year's SmartThings home automation platform— a HomeKit competitor plagued with the same kind of flawed security design found in Tizen and Samsung's Android skins and bloatware.
Charting Samsung's software-hobbled trajectory
Even if we skip past the details of the whole Note 7 fiasco and its incineration of $5 billion in capital and 40 percent of the company's reputation (remember how 60 percent of buyers don't care?), it's useful to look back on what Samsung has done over the last three years since it hit Peak Galaxy back in 2014.
Unlike Apple's wild seasonal swings in quarterly revenue, Samsung Mobile— the South Korean conglomerate's Apple-comparable IM business segment that sells phones, tablets and PCs— has turned in a relatively steady $20-25 billion in quarterly revenue over most of the last three years.
It has however incrementally fallen from the beginning of 2014, when it sold $28.5 billion worth of gear, to the most recent quarter ending 2016, when it hit a Q4 low of $20.8 billion— a pretty large drop for an industry that expects perpetual growth, particularly when compared to Apple's parallel growth from $46 billion to $78.4 billion in quarterly revenue.
Across the same period, Apple's quarterly revenue waved between a nadir of $37.4 billion and new holiday peaks of $74.6, $75.9 and $78.4 billion in each calendar Q4. In the chart, Samsung IM revenues are blue, petering downward, Apple's are gold, poking upward. Much of this can be pinned on Apple's mastery of integration vs Samsung's hardware-oriented software handicap.
Apple's "Other Stuff" revenues larger than Samsung Mobile
Another pattern detailed in the chart is Apple's split between iPhone revenue (red) and non-iPhone revenue (purple; note that the gold lines represent both together: red+purple). A consistently large percentage of Apple's revenues come from iPhones. However, Apple's non-iPhone revenue has now grown larger than everything Samsung IM does: tablets, PCs, Chromebooks— including all of its Galaxy and non-Galaxy smartphones.
When people talk of Apple's non-iPhone business as being minimal leftovers almost unworthy of mention, keep in mind that business is now actually larger than Samsung Mobile, which accounts for nearly half of all Android units globally and most of the profits derived from Android. Put another way: outside of the smartphone mega-business, Apple's "other stuff" is worth more than the second place revenue generator in global smartphones.
And again, just to emphasize how incredibly unbelievable that is: Apple's "other stuff" represents the kind of products that other vendors— including Samsung— barely make any money on at all: PCs, tablets, watches and apps.
Apple's non-iPhone "other stuff" is less than 31% of Apple's total revenues but is by itself larger than the biggest, second most successful smartphone maker in the world
Apple's non-iPhone "other stuff" is less than 31 percent of Apple's total revenues but is by itself larger than the biggest, second most successful smartphone maker in the world, or alternatively, the sum of rest of the world's total smartphone production: the majority of that "overwhelming 88 percent phone market share" that gets attributed to Google.
What a fantastically incredible lie persists among those trying to portray Android as the winner in phones, or that Samsung's minority of flagship Galaxy sales are somehow a neck-and-neck competitor with Apple's iPhone business just because the media invents and perpetuates this fiction.
Now, the coup de grace: profit
Finally: compare operational profits: Samsung Mobile (in green) and Apple's (in orange). Green is barely even there at the scale of this chart, at $2.2 billion in the last Q4. Apple's are consistently above $10 billion, reaching up to $23.4 billion in the last reported quarter— more than ten times the productive result of Samsung Mobile in a similar mix of business.
Over this entire 3 year period— where lots of things happened— Samsung consistently introduced two new flagship phone launches each year, built and shipped at least twice as many phones as Apple, released a flurry of tablets and has shipped a variety of other "IM" products ranging from Gear watches to Gear VR goggles to 360 VR cameras to Bluetooth earbuds to Windows PCs and ChromeOS netbooks.
Despite all this, Samsung is consistently selling less and earning less each year, while Apple keeps delivering new peaks in revenues and profits on a totally different scale at the top of the chart. In its last quarter, Apple delivered greater profits than Samsung's IM had earned over the last 2.5 years.
When your rival makes ten times as much money as you, you can't just work a little bit harder and expect to catch up. There's no way to spin facts and numbers to make Samsung IM look like it's in anything other than a long-term death spiral. It's doing a tremendous amount of work but getting paid almost nothing for it.
If you want to mislead people, you can find short term comparisons where, for example, Samsung launches a new phone and briefly eclipses iPhone sales at their lowest point in the year. But the reality is actually quite simple: the world's largest phone maker (and the anchor of Android) is minimally profitable making smartphones and other hardware, and effectively makes more money just selling its raw components to Apple.
This all appears to largely be due to Samsung's poor performance in software; this makes its phones essentially interchangeable with much cheaper Chinese Androids; its PCs are similarly undifferentiated from other Windows makers and its other devices are plagued with such shoddy software that they fail to excite the market sufficiently to drive meaningful sales, let alone profits.
Apple's critics like to fawn over Samsung in an apparent effort to prop up some real competition, but that praise hasn't done anything to bolster Samsung's performance in the last three years. Just to match the performance of the old Galaxy S4, the new Galaxy S8 would need to sell massively more than last year, but analysts are expecting significantly fewer sales this year (as much as 20 percent fewer), on top of the whole Note 7 thing.
Apple isn't just moving faster, it's moving away
Rather than incrementally catching up to Apple, Samsung is wasting time and falling behind. Further, as Samsung modestly limps along, Apple is both using it as launching pad and independently leaping to what's next, taking its cash pile with it.
Originally starting out behind Samsung in phone cameras, Apple is now steps ahead, both in multiple sensor imaging and Image Signal Processor design, even before launching the results of its various recent AR-related acquisitions. Recent camera reviews that have sought to portray the Galaxy S8 as perhaps marginally better than iPhone 7 have drawn criticism from readers looking at the same photos. Samsung should be six months ahead of last fall's iPhone 7, and instead is materially behind in accuracy, ease-of-use in software features, and even in hardware innovations.
And in Application Processor design, Apple has gone from being an iPod-era Samsung client to a contemporary (2010's A4) to being significantly ahead of Samsung since 2013's A7. It has since taken its chip fabrication business to Samsung's rival TSMC, erasing a major chunk of the business that used to reliably pay the bills at Samsung's LSI fabs.
The CPU cores of Apple's latest A10 Fusion speed past Samsung's own Exynos and Qualcomm's fastest Snapdragon, neither of which generate comparable profits to warrant equal investment going forward.
Apple is also developing its own GPU, something that will likely shift the goal posts as dramatically as the A7's 64-bit CPU did in 2013. Samsung has spent billions trying to acquire the ability to match Touch ID, Apple Pay, HomeKit and many other features, but it continues to earn far less money for its efforts. Apple keeps adding new challenges for Samsung to attempt to copy, and none of them are inexpensive to duplicate.
Large investments in proprietary silicon design have rapidly enhanced Apple's internal hardware capabilities in obvious ways, as typified by the custom W1 chip powering AirPods and wireless Beats headphones. At the same time, while Samsung has developed advanced LED and OLED screens for Apple, the profits generated by iPhone, iPad and Apple Watch are funding the development of new micro-LED technology independent from Samsung.
A recent report from Business Korea notes that Apple has been working with LuxVue (which it acquired in 2014) to develop new micro-LED screen technology to replace the OLED screens now used in Apple Watch.
It noted that the new technology isn't yet capable of yielding large screen iPhone displays, but could get there over the next couple years. That means Apple's use of Samsung OLED screens for a new iPhone model this year are only temporary. And before Apple moves away from OLED, it's likely to switch from Samsung OLEDs to production from China, the report stated.
In addition to the loss of a billion dollars worth of OLED screens, Samsung and LG are also increasingly concerned that Apple will start sourcing its RAM and cameras elsewhere, too. Apple is reportedly in talks to acquire Toshiba's memory business for itself, ending nearly two decades of being among Samsung's largest RAM customers.
Outside of Apple, there are no other very profitable hardware makers looking for premium-priced, high-end components with the ability to sell them in high volumes to a loyal base of hundreds of millions of customers. Idling or scaling back production of chips and displays are equally ugly prospects for Samsung.
This all might seem unfair to Samsung, which is currently the best performing smartphone maker apart from Apple. However it really shows how badly Samsung is performing in its attempt to deliver consumer goods like Apple, despite being equipped with a supply of all the needed components to ship its own finished products— apart from (quite importantly) a real software platform of its own and the ability to develop novel, useful new software.
The common but absurd portrayal of Samsung Mobile as a parallel, equal and "perhaps even superior" rival of Apple isn't even the most shockingly ignorant, false narrative in circulation, as the next segment outlines.