Samsung Rising Sales

Written by Ivan W.

Article written based on <http://www.bloomberg.com/news/2012-10-04/samsung-3rd-quarter-profit-beats-estimates-on-galaxy-phones-1-.html>

I have always shown an interest in the iPhone battle against Samsung phones in the Smartphone market and now I will explain why Samsung profit is getting higher and why it is dominating the market. The battle has raged on ever since Apple decided to sue Samsung for damages it has caused in copying Apple’s designs. Samsung had been sued by apple for $2.5 Billion in damages in which Apple claimed that Samsung’s phones and tablets copied its devices’ behavior and appearance. Samsung also counter-claimed about $200m, saying the iPhone and iPad used its wireless 3G standard technologies, and methods for tasks such as sending a photo by email from a phone. Now this is an example of an Oligopoly, but not to be confused with a pure competition and also a study of microeconomics of product market. 

Firstly, what are an oligopoly and a pure market? It is explained in the table below: 

We can safely say that the Smartphone market is an oligopoly with Samsung and Apple being the main distributor and the rest just fighting what’s left of the market. With Samsung controlling 68 percent total share globally according to IDC and Apple controlling 17 percent of the global market. Why is Samsung dominating the market? 

Let’s go back to the basics of microeconomic and look at the demand and supply of the phones. It doesn’t take much market research to know that the Samsung SIII is cheaper than the iPhone. With iPhone 4S being priced at USD$399 for the 32 GB and Samsung SIII priced at USD$249.99 for the 32 GB as well. According to the law of demand, when price of a good drops, the quantity demanded for it will increase as shown in the movement along the demand curve: 

The vertical axis is the price of the good, while the horizontal axis is the quantity demanded. The Red line (D) is the demand curve of the Samsung SIII and it represents the amount that consumers are willing to pay at any given price. When price of a good drops or lower than its substitute, then quantity demanded of that good will increase as shown above, P1 dropped to P2 resulting in QD1 increasing to QD2. 

Focusing on the Middle Class People, this is a very basic common view of what happens in the market for any “normal” good. Now let’s look at how price changes of Samsung can affect the iPhone. Since both companies are competing in the same market, consumers can either enjoy buying the Samsung or the iPhone because both offers almost all the same features. So if price of Samsung decreases, people will buy Samsung instead of iPhone. This is known as cross elasticity of demand where price of one good can affect the other good. 

This also creates a substitution for the iPhone. Both company are competing so if price of Samsung is cheaper than the iPhone, surely consumers would go for the Samsung phones because Samsung is a substitute for iPhone but at the same time iPhone is also substitute for the Samsung so price plays a big role and affects the quantity demand of a product and this might be the reason why Samsung Sales is increasing and also surpassed iPhone as stated in the article. 

Other factor that might affect Samsung Sales is technology. This factor can cause a change in demand for the iPhone therefore making Samsung a more preferred choice over the iPhone. Nowadays the Samsung android market is taking over the apple IOS software. From what I think, when Apple introduced the Apps store a few years ago, there were too many restrictions in place and it wouldn’t approve third-party apps that mimicked functionality of existing apps. The restrictions have since eased, but you still can’t change the default apps in iOS even if the alternatives are better. For instance, hyperlinks will always open inside mobile Safari even if you find Chrome a better browser. Android on the other hand allows users to replace system stuff, like the on-screen keyboard and many more. Also the apps in the android market are almost completely free compare to iOS, who wouldn’t want free stuff? 

Now this technological advantage of Samsung has affected the demand of iPhone in the sense that people actually prefer Samsung because of its android OS compare to iOS. The demand is illustrated below: 

The Red line represents the demand curve for iPhone and the Green line is shifted to the left due to Samsung technological advancement changing the taste of consumers. When the demand curve shifts to the left, it means demand for iPhone has decreased due to many factors like technologies, when it shifts to the right; it means there is an increase in demand for iPhone. Not to be confused with Quantity demanded. The difference is that quantity demanded is when the demand is still there but people actually just buy lesser of it. 

This can also explain why Samsung Sales increased therefore increasing profit and also dominating the market. 

In my own opinion, I think Samsung is breaking record in Sales compare to iPhone because it’s cheaper and its technology is getting stronger in terms of Operating System (OS). This explained why sales are high in the article. 

Apple's goal by the end of 2012

Written by Wei Yoong L.

Article based on:

<http://biz.thestar.com.my/news/story.asp?file=/2012/9/18/business/20120918080726&sec=business>

Nowadays, technology is widely seen in 21st centaury. The technology has change people’s life by making our lives more convenient and easy. Besides that, the technologies have save up people’s time to complete a task. Therefore, recently, Apple Inc has launched the iPhone5 smart phone to the world. According to Apple inc (September,2102), booked orders for over two million iPhone5 models in the first 24 hours and to sell 45.21 million iPhone in the end of this year. In order, Apple Inc to produce such a big bulk of iPhone5, there are many problem need to be overcome.

Apple Inc is not just producing one good, which is iPhone5. However, there are still producing others product example iPod touch, iPod Nano and also iPad. Hence, if Apple Inc would want to increase the production of iPhone5, the company would need to face a tradeoff. The reason the company will face a trade of is due to the limited resources and the working labor hours to produce the several of Apple’s product that called scarcity. The material used to produce in iPhone5 not only just focus in iPhones but also others, such as anodized 6000 series aluminum also apply in the MacBook pro, the ceramic glass on the white model and the pigmented glass on the black model of iPhones5 and also the processor and LCD screens also used to produce iPad as well. Besides that, the approximate labor for Apple Inc in China is about 200,000 workers to produce iPad, iPhone5 and other Apple’s produce. Therefore, with this limited resources and labors that Apple has eventually will face constraints and lead them to a tradeoff by giving up some of the quantity of other Apple’s product when the company would want to focus on iPhone5. Furthermore, this will bring effect to the company to hit the targeted number of iPhone5 sold by the end of the year. So, we can see the Production Possibilities Frontier (PPF) to see the best way to produce the maximum production in this scarcity.

The PPF will only focus on 2 goods (iPad and iPhone5) produce by the company and other quantity of all the other goods and services remain constant in the state of ceteri paribus. However, there is only 2 things are variable which is the iPad and iPhone5.

The curve below explains the PPF curve.

(Figure 1.1)

This curve explains that the company cannot produce more goods anything above the curve at point H due to the availability of resources and labor. Besides that, the company is attainable to produce anything below the curve, but they will not want to produce goods any quantity at the brown color region such as point G due to lack of efficiency of using resources and labors. Furthermore, the favorable quantity that the company would want to perform is quantity along the curve that is point A, B, C, D, E, F. Every quantity that the company produces along the curve shows the resources and labor are fully utilizes by no wasting it. However this curve shows a tradeoff when the company would want to produce more in a particular product. For example, when apple would want to produce more on iPhone5 form point C to point D. the number of iPhone will increase from 2.5 units to 3 units, but a decrease in iPad form 13 units to 10 units, so do the same on the other points on the curve. Thus, Apple Inc would need to find the most suitable point to create the maximum revenue and to hit the goal of iPhone5 sold in the end of the year.

To prevent Apple Inc to fall on point G for iPhone5, the company would need to be production efficiency. It can be achieve by producing goods at the lowest cost and highest output with utilizing the resource efficiently. Therefore, the company would need to find the cheapest LCD screens, ceramic glass and etc from the suppliers and it incur an opportunity cost by finding the materials. Furthermore, after finding the minimum cost of material, the company would need to produce the maximum number of Iphone5 by allocating resources efficiently. Once the company misallocates the resources wrongly the number of output decreases and will lead to a higher cost of production for the targeted number of iPhone5. However, there is a taste of change for the people to iPhone5. So, in order to maximize the profit for Apple Inc, the company would need to achieve allocative efficiency. Due to the change of trend, the company would need to allocate more resources on iPhone5 instated of iPad. If the company still would produce the same amount of iPhone5 and iPad, their total revenue in the end of the year will be reduce. This will happen is due to people the current change of trend having causes more people demand on iPhone5 and less demand on iPad. So, if the supply of iPhone5 is the same as iPad there will lead to a shortage of iPhone5 and surplus of iPad. The company could have reduce the supply of iPad and focus the resources on iPhone5 by boosting up the quantity to maximize their profit.

The price of the iPhone5 is control by the Apple Inc, when iPhone5 first launch, there is no competitor to compete with Apple Inc. Thus this shows that item is price inelastic. In the short run, there is still increase in demand of iPhone5 even thought the price are high. This is due to the change of trend and some people will buy cause of appreciate their social status in the society. On the other hand in the long run, the market structure will change into oligopoly. Apple have very little competitor in fact their major competitor is Samsungs. This shows the characteristic of small number of firm to compete. Eventually, Samsung will come out a similar product like iPhone5 to compete with Apple. Naturally, when there is competition will lead to a substitution of product and causes the iPhone5 from price inelastic to price elastic. So, at this time the price is vary and causes loss of some Apple Inc’s consumer and causes the demand to decrease. This will lead to a decrease in demand, and make Apple to come up and new idea and produce a new product.

In conclusion, Apple Inc will need to overcome most of the problem in the article in order to reach their goal by the end of this year. Therefore, I am very excited looking forward on the way of Apple Inc handles this problem in the coming time.

The Change in Market Structure in the Mobile Phone Market

Written by Kaiwen C.

Article is written based on information provided in this Link

“Success in business today requires real-time, mobile access to business opportunities”. In the 20th century, information is everything. Almost everyone, regardless of age would have a phone in their hands at any time. The mobile phone has a very huge market, and shown an interesting development over decades. Almost all new product starts with a monopoly. In a free market, the monopoly will break down into either an oligopoly with brands, or a perfectly competitive market. Now we will look into 3 mobile phone companies that have huge influences in the change in market structure of the mobile phone market. 

The mobile phone market is very concentrated ever since the beginning of the information era which started around the 90s. The leading mobile phone company was Nokia then, a mobile phone company originated from Finland. Nokia gained dominance for a long period of time until the evolution of normal mobile phones into smartphones which started around 2007. Smartphones became very popular after the introduction of iPhone by Apple. It monopolized the mobile phone market till the next leading substitute – Android that is installed into Samsung mobile phones recently. 

Nokia introduced the first mobile phone that’s using the GSM system on July 1st, 1991 – the second generation mobile phone. As the sole technology owner, Nokia was able to monopolize the whole mobile phone market for a significant period of time. During 1994, Nokia launched the model 2100, introducing the first ever mobile phone with their ring tone. With a target of 400, 000 units, Nokia was sold around 20 million units of the 2100 series, which is 5000% of their target. The demand for Nokia was much more than they targeted. 

After the monopoly broke down into oligopoly, Nokia was still able to maintain as the market leader. I believe Nokia’s success is due to they are able to provide affordable mobile phones to most of the public who are at the middle income group. In addition, by mass production, Nokia enjoyed the benefit of economies of scale, where the marginal cost of the product is highly reduced, which also allow them to sell their product at an acceptable price. Comparing Nokia to other competitors at that time, Nokia was able to provide their product at a lower price, and the quantity demanded for Nokia mobile phones increase. From this we can deduce that the price elasticity of demand for Nokia mobile phones is relatively elastic. In addition, I also believe that Nokia is trying to promote their phone as an income elastic normal good. A normal good will attract wider range of consumers from different income groups. Even people from the lower income group will buy the product when they can afford it as their income increases. 

Over years of development, mobile phones revolutionized into different specialized fields in order cope with the owner’s needs and preferences. Smartphone is one of the revolutionized forms of mobile phone. The first smartphone on market was Simon Personal Communicator in 1994. However, Apple was the first company to successfully incorporate its innovation into smartphones. The term smartphone only came popular after Apple introduces their first smartphone in 2007 – iPhone. I believe Apple’s biggest success was at their application section as they open up the development to everyone. Apple does not require much skilled labor and equipment to develop applications for their product. The usage of personal resources is low but the output is high, furthermore the application developed fits the consumer’s needs. Hence in their application development, Apple is allocatively efficient. 

                                                 

Unlike Nokia, Apple tries to create a premium brand image for their product. I believe this is the failure in iPhone. Apple thinks that they can at least monopolize the market for a period of time like how Nokia did. As time changes, technological factors improved, which hasten the process of imitation or creating substitutes. Nokia while monopolizing the market has already taken measures of mass production to provide mobile phones at a price even lower than oligopoly. However, Apple on another hand is seeking to sell the iPhone as a premium product, in other words a superior good. Where the demand increase by a large amount as income rises; in addition, the product is also scarce and high priced. To sum up, the income elasticity for iPhone is highly elastic for medium income group. 

Apple monopolized both the operating system and the product for smartphone using iOS and iPhone. It didn’t last long till the monopoly was infiltrated as technology factors hasten the process of creating substitutes as compared to Nokia’s time. On one hand, iOS faces Android, an operating system bought over and later on developed by Google. On the other hand, iPhone faces another strong competitor that long existed in the mobile phone market – Samsung. Instead of developing both the hardware and software like Apple did, Android and Samsung specialize in their respective field. Android is only focusing on developing the smart phone’s operating system where Samsung focuses on providing and manufacturing better hardware for the phone. This measure allows Samsung and Android to operate more efficiently than Apple. 

Even though at the beginning, the software and hardware are very far from iPhone’s technology, but the price offered by Samsung is lower than iPhone. This allows Samsung to be seen as a substitute for iPhone. Recently in the second quarter of 2012, both the software and the hardware of Android and Samsung were able to outperform Apple’s product. Samsung overtook Apple and was recognize as the market leader in the Smartphone market. In addition, Samsung also overtook Nokia as the market leader in the mobile phone market. Samsung now holds 21.6% of the total mobile phone market share, whereas Nokia only holds 19.9% of the mobile phone market share, and Apple only hold as little as 6.9% of the mobile phone market share. Samsung promotes its smartphone as a product in between a normal good and a superior good. The income elasticity of demand for Samsung smartphones are slightly more elastic compared to Nokia’s mobile phone. 

In conclusion, as technology goes, it is impossible to monopolize a market for too long. As the market breaks down from a monopoly into different market structures, the pricing of a product is crucial in regards to obtain bigger market shares. I believe Samsung is really successful in finding the equilibrium point to sell its product.