The South Korean electronics company granted the request of wireless carriers in the United States to unveil the Samsung Galaxy S4 in the country—the first for Samsung to launch its next generation smartphone after three years.
Many Samsung Galaxy S4 fans are excited to see and get hold of the smartphone; however, one analyst believe the South Korean electronics manufacturer could experience the “iPhone 5 moment” with the face. This means that Samsung will experience the same situation Apple Inc. (NASDAQ:AAPL) is going through right now after launching its iPhone 5.
Adnaan Ahmad, analyst at Berenberg Bank said, “Learning from our Apple Inc. (NASDAQ:AAPL) experience, the Galaxy S4 launch could be Samsung's iPhone 5 “moment” – when the Apple stock peaked. The S4 should have a better processor (Exynos Octa chip) and improved display (potentially larger/flexible) but how much better can it really be? Samsung, as we have written extensively in the past, has a significant advantage over its peers as it has a 12-18 month lead on AM-OLED display technology. This technology allows for the screen to be potentially flexible and fold-able.”
Ahmad thinks that a flexible display does not provide a “big differentiating factor,” but he believes that a foldable display could make a difference in the future. According to him, fold-able screens are still 18 months away.
“In the interim, mega bulls on the Samsung stock are going to be hoping for a) market share gains versus Apple at the high end; and b) better margin structure than our estimates on the mid-to-low-end portfolio. • We can say with confidence that Samsung’s H1 2013 results will be robust given the S4 release and subsequent sell-in to the market. However, we think that – as with Apple – investors will quickly start to look beyond H1 2013. Hence, any near-term strength in the stock for us is an opportunity to sell down positions,” said Ahmad.
Ahmad recommended a sell rating for the shares of Samsung Electronics Co. Ltd (LON:BC94) (KSE:005930). He also reduced his price target for Apple Inc. (NASDAQ:AAPL) from $800 to $360 per share and advised investors to sell their position in the company.
He commented, “Apple Inc. (NASDAQ:AAPL) is obviously in a dilemma” and it is unclear whether the company will focus mid-end or high-end strategy in order to maintain its retention rate at 85%+ level. In addition, Ahmad said, “Our biggest issue with Apple Inc. (NASDAQ:AAPL) stock is the sustainability of its margin structure. A 38% gross margin and ~28% EBIT margin are high in the context of consumer electronics. If we assume that gross margins fall to the 30% level, where they were before the introduction of the iPhone, with 10% operating expenditure to revenues, this leads to $40bn in annual operating profit. Taxed at 25% and capitalized at a 10% free cash flow yield gets you to $300bn in value. Add its existing net cash of ~$140bn and you arrive at the current market capitalization. The issues here are a) why do margin declines stop at 30% given where peer gross margins stand, and b) can you really value all of cash at par given that more than 65% sits off-shore?”