Fundamental analysis of the smartphone giants
It is well known fact by now that , month after month , Android has been realizing an important market share achievement in the mobile industry , especially in Europe where 70% of the devices features the famous operating system of Google , Apple seems to remain at lower altitudes with iOS at 17.8 %. (link).
The sharp rise of smartphones has marked the decline , by now inevitable , the cases of simple mobile phones manufacturers: Nokia and Blackberry (Ex- RIM) are the companies that have paid more this technological gap but also many historical cases such as Sony Ericsson, of which the leading position on mobile market has quickly vanished.
Who has benefited then ? Those ones who, like Samsung and HTC have quickly adapted to the new Google branded operating system and has put excellent devices on the market with a very competitive price.
Based on these considerations , I had the curiosity to take a look at the “fundamentals ” of the companies to see how effectively they reflect their production decisions on the financial accounts . In this article, we will see the evolution over the last 10 years of important variables such as Turnover , EBIT % (EBIT / Sales) and Shareholders’ Equity % (Shareholders’ Equity / Total Assets ) of the following companies :
• SAMSUNG ELECTRONICS CO., LTD., LTD.
• APPLE INC.
• NOKIA OYJ
• BLACKBERRY LIMITED
• HTC CORPORATION
• SONY MOBILE COMMUNICATIONS AB
Why have I selected these companies above ? Because Samsung (such as Apple, however, does not only produce smartphones) is the company that has benefited from the birth of Android including it in all its devices more than the others; Apple for obvious reasons, Nokia because it was the undisputed leader of the mobile world until a couple of years ago; Blackberry (formerly RIM) because it was the business mobile phone par excellence, HTC because it has followed in the footsteps of Samsung; and Sony Ericsson because it represented, in recent years, as a cheaper alternative to Nokia.
We start having a look at the market capitalization with market shares as of 10 September 2013:
What are these values? In very simple words, theytell us how much worth is a company (technically the value given by the share price multiplied by the number of outstanding shares of the company) and they tell also us that Apple is the queen and is 2.6 times what Samsung is worth and Samsung is worth 8,7 times Nokia and 29,7 times Blackberry!
But as some of you already know, the market capitalization depends on many parameters, not only on the company’s fundamentals, and in fact, if we look at the total Operating Revenue and Equity, we find that the “Turnover” of Samsung is higher than that of Apple while the Equity is a little lower. (Data recorded in the last financial statements filed for the period from 29/09/2012 to 02/03/2013 therefore they referred to the business mainly developed in 2012).
At this point, it becomes interesting to see how they have evolved over the past 10 years, observing the following variables:
• Operating Revenue (for understanding the evolution of turnover);
• EBIT % (to understand the profitability of companies);
• Shareholders’ Equity % (to understand the self-financing capacity of companies).
Let’s keep separate the first two giants from the other four companies:
We note that Apple’s growth in the last 6 years has been a record: it has octupled its revenues! Samsung, however, has only doubled its revenues.
The followers instead are divided into two categories: HTC and Blackberry have declining sales but equal to 3 – 3.5 times that of 2006; NOKIA and SONY instead are constantly decreasing to the values lower than in 2006.
Unsurprisingly, given the prices of the Apple devices, that the company has steadily increased its operating margins reaching a total of 35.3% in 2012 which is equivalent to well over double Samsung (14.4%).
For the other companies it is a breakdown and except that HTC takes into positive territory, all of them close between -7% and -11%.
And here’s the surprise: the most capitalized company is still RIM that has maintained values higher than 70% over the years. Apple and Samsung are aligned to values (though excellent) by 65% while it is a breakdown for Sony Ericsson which closed in 2012 at 6.4% (i.e. for every € 100 invested in companies, only € 6 comes from the shareholders and € 94 comes from third parties!).
I’ll let you draw your own conclusions about the data just given, and I have a couple of considerations entirely personal but I want to do it:
– I think the value of the market capitalization of Apple is too high, and its margins are too high (see the costs of the devices): if the intention is to compete with Samsung & Co, in the future either you invent something new or you will have to reduce prices ;
– Samsung is slow and inexorable: I wonder if it will suffer from the fact that Google has acquired Motorola and therefore, in my opinion, will eventually favor the latter in the mobile market;
– Nokia ,on the edge of default, has been acquired by Microsoft: the decline is obvious and only a decisive change in direction can change things;
– Sony Ericsson: I am surprised that it has not already collapsed. I think it’s a matter of time!
– Blackberry has a unique advantage: practically has no debt but the decline is clear. I wonder if it has been really acquired by Lenovo;
– HTC has been smart: jumped on the bandwagon before it all blew up.