Samsung Reclaims the Title of World's Largest Smartphone Vendor, but the News Isn't All Good

Samsung was able to reclaim the title of No.1 smartphone vendor by units shipped -- topping Apple -- without the newest Galaxy units. Is Samsung finally back? Image source: Flickr userKarlis Dambrans.

For technology observers, Samsung and Apple have been on diametrically opposed paths over the past year. For Apple, the newest iterations of its wildly successful iPhone line -- the iPhone 6 and iPhone 6 Plus -- have continued to reward investors with a one-year stock gain of nearly 50%. Meanwhile, Samsung recently reported another disappointing quarter, with profits falling nearly 40% on a year-over-year basis.

Although Samsung is an electronics-focused conglomerate, making pure comparisons to Apple slightly misleading, Samsung's mobile division is just as important to the company as the iPhone is to Apple. For example, Samsung's mobile division accounted for 53% of its first-quarter revenue. Unfortunately for Samsung investors, its mobile division reported a 20% year-over-year sales drop.

If there are any proverbial green shoots for Samsung, it has to be sales of its newest flagship units. After last year's Galaxy S5 failed to match the popularity of its S3 and S4 iterations, the newest Galaxy S6 and S6 Edge units appear to be more favorably received, with mobile-division VP Park Jin-Young predicting sales more akin to the S3 and S4. However, a recent report from technology research firm Strategy Analytics brings good news to Samsung in the interim.

Samsung reclaimed the title of world's No. 1 smartphone vendor After falling behind Apple ever so slightly in the fourth calendar quarter of 2014 as Apple's iPhone 6 and iPhone 6 Plus found an enthusiastic consumer base, in Q1 Samsung reclaimed its title as the world's largest smartphone vendor by volume, according to Strategy Analytics data. In Q4, both companies sold 74.5 million units (rounded), good for nearly 20% of the worldwide smartphone market. In Q1, Samsung sold 83.2 million units versus Apple's 61.2 million.

Unfortunately for Samsung, even this good news comes with caveats. On a year-over-year basis, the overall smartphone market grew 21%, but Samsung shipped 6.5% fewer units in Q1 -- the aforementioned 83.2 million units, versus 89 million in the first quarter of 2014. Apple grew its units shipped during this period from 43.7 million to 61.2 million -- good for a 40% increase. As a result, Samsung's market share dropped from 31.2% to 24.1% year over year while Apple's grew from 15.3% to 17.8%.

Another big issue: Units aren't profitsWhile Samsung should be encouraged by these results, it's important to note that unit sales don't necessarily equal revenue or profits. Reconciling Samsung's 20% year-over-year mobile revenue decrease with a 6.5% drop in units shipped points toward a shift to cheaper units during this period. Unlike Apple, Samsung follows a bifurcated smartphone strategy, with low-cost units and razor-thin margins in the developing markets, while its high-end Galaxy line competes against Apple in the high-end markets.

The company's operating profit in its mobile division appears to confirm more sales of low-margin units. Although Samsung reported a 20% drop in revenue from last year's corresponding quarter to this year's, its mobile operating profit dropped 57.4%, signifying a lower contribution margin per unit.

For Samsung investors, however, it's good to see Samsung grow its units shipped on a quarter-over-quarter basis after last quarter's sequential drop. Although its win comes with significant caveats, it's still a win. Even better for fans, Samsung's Galaxy S6 and Galaxy S6 Edge units weren't included in these numbers because of a post-Q1 release. If these flagship phones are the hit that Park Jin-Young envisions, Samsung could benefit in both units shipped and in its financial performance.

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Jamal Carnette owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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