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Keywords: aapl analysis, xiacy, xiacy analysis, xiacy stock analysis, 1810.HK, apple losing smartphone market, samusng losing smartphone market, iphone future analysis, tech stocks, tech stocks analysis.
Summary:
The big guys are struggling.
Chinese manufacturers are performing significantly better than the established market leaders.
Apple and Samsung are struggling in increasing their p.a. product utility, compared to the Chinese manufacturers.
Long term, its unlikely that the big guys would be able to maintain their market position.
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Apple, of course, played an instrumental role to usher in the era of the smartphone with the iPhone, which, arguably, was a superior version of the PDAs of the generations before. Presently, Apple has been seeing an improvement in its market share, just observing this one parameter, however, would be imprudent, when it comes to understanding what tomorrow holds; indeed, investors relying on base-factors would not understand the long-term condition of the market. Samsung, the 'second-mover,' on the other hand, recently, has been struggling to increase its market share on par with Apple.
Apple has improved its market share, but will it remain the top-dog in the future? Is it wise to still consider the long-term perspective of Apple's smartphone division, its highest revenue generator, as 'rosy'? And what about Samsung? Surely, if Apple stumbles, Samsung is going to be the king, right? Let's not assume anything just yet.
Source: chart of the day
Source: MOBILE DEVICES MONITOR
What metric should be assessed, primarily, to understand who will win in the long-term?
Utility. Yes, that is the most important factor to consider. Has the utility of the iPhone or the flagship Samsung series increased at a stable pace? No. The marginal utility of each new model has seen a diminishing increase, i.e., the next phone that Apple or Samsung produce would have a lesser utility increase than the rate of increase in the previous years.
Simplistically, this means that if u take the first iPhone, and compare it with iPhone 6, for example, you will see a very significant improvement in utility; the camera the browsing speed, the features are so much improved. Now, if you translate it to an improvement rate per year, and compare it to the improvement rate per-year from iPhone X to iPhone 12 Pro, the per year rate of improvement value would be less than the yearly improvement rate of iPhone 1 to iPhone 6.
Utility, nonetheless, is a complex issue, and one that varies from person to person. Thus, blanket statements about utility are not apt.
So, can we use a proxy?
Well, yes. For the purpose of this report, the AnTuTu benchmark score, which gives smartphones a score based on the performance of their UX, RAM, CPU, IO, and GPU, has been used. It must be noted that while Antutu states that the tests for android devices and iOS devices are not comparable, this statement seems like a precautionary one, as industry experts who have compared CPU, GPU, and UX performance, for example, have stated that the tests are in the same ballpark.
Nonetheless, analysis that considers the two scores as independent is also included in this report. Questions regarding the exclusion of the camera picture quality, etcetera, may be raised; however, a long-term analysis of Dxomark mark scores reveals a significant correlation with the AnTuTu score
If a device has a significant improvement on these parameters (i.e., a higher AnTuTu score), it should be a faster device that has significantly more power than a low scoring device; this would, of course, mean that the customer may be able to perform more tasks, perform tasks quicker, or perform tasks that previously were not possible. This increase in performance, broadly, increases the utility for the customer, and can be used as a proxy for this analysis.
Another important parameter is the value of utility and whether it's been increasing or decreasing; to gauge this, a ratio of AnTuTu score divided by the launch price (AT/$) is used in this analysis.
First, the summary analysis of Apple is presented, after which, Xiaomi's Summary analysis is presented:
Table 1. Apple summary Analysis
Table 2. Xiaomi summary Analysis
So, what's this, and what does it mean, simplistically?
To understand whether Apple or Samsung will remain the top dogs or be dethroned, as elaborated above, we need to see whether they are winning at increasing their products' utility, when compared to the emerging key players, or not.
From the summary data above, first, we can see that Apple's AnTuTu score growth rate (geometric mean) p.a. has been 55%; The same figure for Xiaomi stands at 75% -- Xiaomi has been beating Apple in the proxy we used for utility; accomplishing a greater increase in p.a. utility for its smartphones.
Secondly, the all-important, value of utility ratio of a smartphone, constructed in this report as AnTuTu score/price ratio (the higher the value, the better). We see that this ratio for iPhone 4 was 55.3, rising significantly to 580.4 for iPhone 12 pro. On the other hand, the same ratio for Xiaomi's Mi 1 stood at 12.1, rising exponentially to 1016.5 for Mi 10.
We can see the amount of ground covered by Xiaomi; it started at a ratio of 12.1, but with the Antutu score/cost ratio growth rate (geometric mean) of 64% p.a., it started outperforming Apple from 2012 onwards, with its 2012 AnTuTu score/cost of 108 for the Mi 3, compared to 94 for iPhone 5s. For the iPhone 12 Pro and Xiaomi Mi 10, this ratio widened by a very significant 50%. Apple started losing 2012 onwards, and recently, it has gotten very concerning.
Here again, one might bring up the argument of the scores not being comparable, i.e., iOS scores and android device scores being different. To definitively answer this concern, we must consider Apple's AnTuTu score's growth rate compared with its own phones. The per-year growth in the AnTuTu benchmark score of the iPhone from 2011 to 2020 stands at 55%; the iPhone models have demonstrated a growth rate for our utility proxy of 55%. Xiaomi's figure for this parameter is 75%.
Furthermore, the annual increase of iPhone-to-iPhone value of utility ratio (AnTuTu score/price) reveals the growth rate (geometric mean) in this ratio, p.a. of 30%, in the last decade. This is Apple's result compared to its own products, and the comparison concern with android is eliminated; however, we can logically benchmark this growth rate with Xiaomi's value of utility ratio (AnTuTu score/price); the growth rate (geometric mean) of this ratio, for Xiaomi, p.a. has been 64%, in the last decade.
Surely, we can state with confidence that even if we consider the two scores of iOS and android as incomparable, Xiaomi, under the android testing parameters of AnTuTu, has demonstrated a higher growth rate p.a. than Apple. Benchmarking the growth rates separately also reasserts that Xiaomi has performed substantially better.
This report uses two companies to establish a point; Apple isn't innovating and increasing the utility to value ratio of its products, at a speed comparable to Xiaomi.
Two companies have been used in this report to keep the report succinct: however, analysis of the smartphone market as a whole reveals that the big guys, Apple and Samsung, are not keeping pace with the Chinese companies.
This condition has persisted for the past decade, and if it hasn't changed in a decade, it's not very likely to change in the future. Long-term, the prospects of the iPhone and the flagship smartphone products of Samsung do not appear as rosy as the prospects of the Chinese companies. An intelligent investor must consider this condition to reassess the allocations in her portfolio.
But this isn't what the market share of the big guys tells us.
There would be a delay in the decline or substantial decline of the big guys; this is because of the brand loyalty, recognition, and esteem, in customers' eyes. However, we must understand how brands gain these advantages. . . it is primarily through their products, value, and differentiation of their offerings, but when the Chinese manufacturers beat the big guys by miles, when it comes to value to utility ratio, and the rate of increase in utility, the brand value related intangible advantages would shift in their favor.
The Chinese companies are gradually, but continually, making gains in the market share:
This condition, arguably, is what Schumpeter (1942) predicted in the famous "creative destruction" process. For a further understanding, review the article linked with this report:
"The "Creative Destruction" Process, What Is It and What It Means for Apple, Amazon, Facebook & Tesla."