Samsung Passes Nokia as Handset Leader, Its Earnings Rocket

Samsung passed longtime global handset leader Nokia (NYSE: NOK) in the first quarter, according to Strategy Analytics. Global handset shipments reached 368 million units for the period, and the South Korean company had a 25% market share. The details were released on the same day that Samsung announced record first-quarter earnings. The corporation made $5.2 billion, in large part due to the success of its Galaxy smartphone, it said. The extraordinary part of the news is that Samsung is doing as well at the low end of the market as at the high one. It has become a dual threat to both Apple (NASDAQ: AAPL) and Nokia.

Samsung’s Galaxy is the only real competitor to the iPhone. The two companies are locked in a series of patent battles that could do as much to determine sales as the features and prices of their smartphones. Aside from the intellectual property issues, Samsung has a lead on Apple globally for now, Strategic Analytics reports. It sold 44.5 million smartphones in the first quarter to Apple’s 35.1 million. Apple makes more per unit than Samsung, most analysts believe. That does not make Samsung any less of a challenge to the growth of the iPhone and iPad.

Samsung has accomplished one thing Apple has not. It has picked up a large part of the downscale handset market. Apple probably has decided that this part of the business is not one in which it wants to compete. A cheap iPhone could damage the product’s image. And margins on a low-end product would be low. Wall St. counts on Apple’s gross margins as one reason that its stock is highly valuable.

Samsung has been able to hedge its bets across the entire handset industry, and it has wounded an already troubled Nokia in the process. Nokia has failed in the smartphone business despite its recent alliance with Microsoft (NASDAQ: MSFT), and now its inexpensive handset business has a large and accomplished challenger.

The smartphone industry is less that five years old — ushered in by 3G networks. Never has a company taken a stranglehold on this new sector while dominating the old one of non-smartphone handsets as well. That is, until Samsung did it.

Douglas A. McIntyre