Samsung expects its best operating income in two years, to a large extent on the back of the success of its improved Galaxy S7, which competes at the high end of the smartphone market. This used to be a segment dominated by Apple Inc.’s (NASDAQ: AAPL) iPhone, but not anymore.
Nearly three years ago, Android-based Samsung phones hurt Apple’s sales, but new versions of the iPhone changed that. Recently the pendulum has swung back in Samsung’s favor. The new iPhone 6 family has not done as well as expected. This was the main reason for Apple’s disappointing numbers in its most recently reported quarter. Rumors that production of the iPhone 6 and its components have slowed have added to the pessimism. Also reflecting this, Apple’s share price has dropped 12% in the past three months.
Apple’s 2016 fortunes rest on the launch of the iPhone 7. One theory is that the launch will have to be disappointing. Smartphones have come so far that additions in features can only be incremental and not revolutionary, as was true with the mature personal computer market before them. Apple also faces the challenge that smartphone sales increases have started to flatten in most regions worldwide.
According to recent research, iPhone sales are weak in China. Apple management has repeatedly said China is the key to its future success.
And analysts worry that the Brexit could hurt iPhone sales in the European Union and United Kingdom later this year. Of course, Samsung is up against a similar challenge.
Apple’s prospects likely will worsen until the iPhone 7 comes out, probably in September. It has to be a smash hit to demonstrate that Samsung’s success is temporary. This year, that is among Apple’s highest hurdles.