Canaccord Genuity analysts T. Michael Walkley, Matthew D. Ramsay and Siddharth Sinha provide an outlook for Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930)’s smartphone sales.

Apple

Apple sales disappointing

Our global wireless surveys and recent earnings reports from leading global handset/smartphone OEMs indicated a softer than typical December quarter for global smartphone sales. We believe softer high-tier holiday season smartphone sales for leading OEMs in North America were due to stricter carrier enforcement of 24-month upgrade plans. Following very strong Q3/13 sell-in trends for Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930), this leading Android OEM lowered channel inventory during Q4/13, and this also impacted smartphone sales. Finally, China smartphone sales slowed during Q4/13 ahead of LTE network launches and new 4G enabled smartphones.

Apple and Samsung dominate Q4/13 value share

Following softer Q4/13 global smartphone sales and weaker than anticipated Q4/13 results from eight leading smartphone OEMs, we estimate handset industry operating profits of $16.3B from these 8 OEMS during Q4/13 declined 4.5% Y/Y from $17.1B in Q4/12. We estimate Apple Inc. (NASDAQ:AAPL) increased its share of industry profits from 56% in Q3/13 to 76% in Q4/13 as the new iPhones launched in late September gained share versus competing high-tier Android smartphones. Further, despite overall soft Q4/13 results following record Q3/13 operating profits, we estimate Samsung still captured an impressive 32% of handset industry profits. In fact, we estimate Apple and Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) combined to capture a remarkable 107% of Q4/13 handset industry profits as other leading OEMs such as BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB), Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V), LG Electronics Inc. (KRX:066570) (OTCMKTS:LGEAF), HTC Corp (TPE:2498) and Motorola Solutions Inc (NYSE:MSI) posted operating losses or near breakeven results. Given the ramp of Chinese OEM smartphone volumes, we note our industry profit analysis excludes this group gaining an increasing share of the smartphone and overall handset market profits due to the lack of available profit metrics.

Apple and Samsung maintains top share of the U.S. smartphone market

Our U.S. surveys indicated Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) and Apple Inc. (NASDAQ:AAPL) maintained top share of the U.S. smartphone market with the iPhone 5s the #1 selling smartphone at all four tier-1 U.S. carriers and the Samsung Galaxy S4 and Samsung Galaxy Note 3 the other top-selling smartphones. Our U.S. surveys also indicated increased carrier focus on boosting cellular connected tablet sales through increased tablet subsidies, lower data rate plans, and increased focus on selling tablets for shared data plan offerings. Finally, our January surveys indicated gradually improving momentum for early smartphone upgrade plans launched last year by a number of U.S carriers. However, our surveys indicated certain carrier upgrade policies were more strictly enforced, and this adversely impacted the adoption of these early upgrade plans.

LTE smartphones ramp in developed markets

We believe the migration from 2G feature phones to 3G smartphones, growing LTE smartphone penetration in the mid- to high-tier smartphone segment, and increasing  adoption of WAN connected tablets should result in healthy long-term sales and earnings growth for BUY rated Qualcomm, Inc. (NASDAQ:QCOM), ARM Holdings plc (ADR) (NASDAQ:ARMH), Avago Technologies Ltd (NASDAQ:AVGO), RF Micro Devices, Inc. (NASDAQ:RFMD), Skyworks Solutions Inc (NASDAQ:SWKS) and Apple Inc. (NASDAQ:AAPL). We believe Motorola’s potential acquisition by leading Android OEM Lenovo significantly enhances Lenovo’s footprint in North America as well LTAM. We view increased Android competition as healthy for the market.