Why Only Samsung Builds Phones That Outsell iPhones

For the first time in years, one single handset model has reportedly outsold the iPhone. Strategy Analytics says that more Samsung Galaxy S III phones than Apple iPhone 4S handsets were sold in third quarter of this year. 

Samsung Electronics (005930) moved 18 million such handsets, while Apple (AAPL) sold 16.2 million during the three-month period, says the research firm. It should be noted that Samsung’s figures represent shipments, not actual sales, but there’s a bigger point to be made here: Samsung is currently the only company that can even come close to competing with Apple when it comes to smartphones.

 Before explaining why, here’s a closer look at the data. Apple’s figures represent actual sales, while Samsung’s numbers reflect the shipments of Galaxy S III handsets to carriers. That means if a carrier has an unsold Galaxy S III on the store shelf, it counts in this comparison. As a result, the Samsung figures of actual sales are lower than shipments. And if you were to count the 6 million iPhone 5 shipments in the Strategy Analytics report, Apple would outpace Samsung: 26.2 million to 18 million.

 In the big picture, however, that doesn’t matter. Back in 2010, I noted that Samsung was taking an Apple-like strategy for its smartphone business. At the time, Samsung offered the first Galaxy S handset running Google (GOOG) Android and Samsung’s own TouchWiz user interface. Instead of multiple handset models offered, Samsung decided to focus on one handset for its flagship phone. Others, such as Motorola (MMI) and HTC (2498), for example, opted for a slew of handsets, each similar but yet different. With one phone model—just like Apple—Samsung benefits from production scale, common components, and similar experience for its Galaxy phone owners.

 I revisited this topic again a year later when Samsung was about to surpass Nokia (NOK) as the top seller of smartphones worldwide. I explained why Samsung was about to become the new smartphone king, pointing out even more reasons for the company’s rapid smartphone success. Samsung then introduced a successor flagship phone, the Galaxy S II, and it set a sales record: 1 million sales in the first 70 days of launch. Here’s the thing: Inside the Galaxy S, the Galaxy S II, and now the Galaxy S III are various hardware components manufactured directly by Samsung.

 The company makes its own chips to power phones, Super Amoled handset displays, and flash memory for internal storage. Apple controls its iPhone hardware as well but not directly: It designs the chips for iOS devices, for example, which someone else builds, and it often invests billions of dollars in component manufacturing plants in return for good pricing and primary production capacity. Aside from Samsung and Apple, who else can manage the component supply chain this well? Not Nokia, Motorola, HTC, LG Electronics (066570), or any other smartphone competitor I can think of. Apple is using that manufacturing edge to produce more units with each new iPhone as well. That’s important, because it helps Apple introduce its smartphone in more countries and on more carriers as soon as possible after launch. 

Guess what: When Samsung introduced the Galaxy S III this year in May, it said it would begin sales in Europe with 145 additional countries soon after. Not two weeks later, five U.S. carriers launched the device—a vast difference in the Galaxy S II launch, where the U.S. didn’t see the phone for six months or more. With each Galaxy smartphone iteration, Samsung continues to follow the Apple-like approach of controlling its own destiny as much as possible. 

Other competitors simply aren’t equipped to do so. So while Apple may have created the playbook for smartphone success, Samsung has replicated it more so than any other in this market. That actually shouldn’t surprise you if you’ve followed the Apple v. Samsung trials: The courts have already found in favor of Apple for Samsung’s replication of certain smartphone design, features, and functions. Again, we can bicker over the definitions of sales and shipments, but I’m not sure that matters unless you want to declare a real “winner” today. More important to me is that Apple finally has some real competition in the market, even though it looks to be just one true competitor.

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