Sony Corporation (ADR) (NYSE:SNE) will be releasing the Sony Corporation (ADR) (NYSE:SNE) Xperia Z Ultra in the third quarter, and it will be the best smartphone product the company has ever developed. The product will come with features like water proofing and its triluminous display. The display is superior to the AMOLED and Retina displays, giving it a distinct feature that will help to differentiate it from its competitors.
Sony Xperia Z Ultra
Source: GSMArena
The Sony Xperia Z Ultra is Sony Corporation (ADR) (NYSE:SNE)’s attempt at a land grab from Samsung, challenging the Samsung Galaxy Note 2 in particular. The Galaxy Note 2 comes with a 5.5 inch screen, but when compared to Sony Xperia Z Ultra’s 6.4” screen, even the Samsung phablet looks small. Because of the ridiculous size of the Sony Xperia Z Ultra, many of you investors are most likely wondering, will it at least fit inside of a pocket? The answer is yes, at least with men’s pants, according to this video.
How about Samsung?
Globally, Samsung and Apple Inc. (NASDAQ:AAPL) are well ahead of Sony Corporation (ADR) (NYSE:SNE) with both Samsung and Apple Inc. (NASDAQ:AAPL) logging sequential year-over-year growth in global market share. Sony is far behind in the ninth spot in terms of market share. Sony has around 1.9% market share, but given enough time the company’s unique portfolio of mobile products should be able to propel the company into the number four spot ahead of LG. In a previous article, I mention that Sony’s brand is the fourth most valuable among all mobile competitors. As long as the product specifications are up to date with the latest in technological advancement, Sony Corporation (ADR) (NYSE:SNE) should have a comparative advantage over Samsung in terms of branding.
I estimate that Sony will ship 15 million units of its Sony Xperia Z Ultra and Z in a single quarter and perhaps 60 million units per year. For this to happen though, Sony would need to find ways to distribute its Sony Xperia Z Ultra smart phone.
In the United States, the first carrier that will carry the phone will most likely be T-Mobile or Sprint. T-Mobile is willing to carry the Sony Xperia Z through a phone contract, so given enough time, other carriers will soon offer the Sony Z ultra through a contract. Sony will gain a foothold in the US smartphone market and that in turn will lead to market share gains against rivals like Samsung and Apple Inc. (NASDAQ:AAPL).
Analysts remain pretty optimistic about Sony Corporation (ADR) (NYSE:SNE), and believe that the company may be able to grow earnings by 54% per year over the next five years. To be fair, this rate of growth is also driven by currency market fluctuations.
Lack of optimism in Samsung
Reuters reports:
Woori Investment & Securities, one of South Korea’s largest securities firms, cut its outlook for Samsung’s earnings and target share price on June 5. It was the first to adjust its view. A massive wave of downgrades has since followed, with forecasters including JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS) and Goldman Sachs taking a harder look at their assumptions of how well the S4, Samsung’s latest Galaxy smartphone, would actually do. Sales estimates for the S4 was slashed by as much as 30 percent, stirring investor concerns over Samsung’s mobile devices division – the company’s biggest profit generator.
Samsung’s downgrades are one issue. Another issue I have with the company’s products is the lack of ecosystem supporting them. Android is a partial ecosystem that doesn’t really have that much cross-compatibility with Windows computers. In other words, every application that is purchased in the Android store won’t be carried over to your Windows computer.
Going forward, I find it highly doubtful that people will stop using Windows operating systems. Microsoft Word, Excel and PowerPoint are how most office and school work gets done in the world. People are trained to use these programs, so there’s a factor of stickiness that is keeping Android from becoming a fully independent ecosystem that can appeal to both the work and play crowd.
Consider Apple iOS
What’s even more troublesome is that Microsoft Corporation (NASDAQ:MSFT) has basically pushed Office 365 onto the Mac OS X, and iOS ecosystem. Given enough time, Office 365 will be made available for both the iPad and iPad mini. Everyone in both the Apple and Microsoft Corporation (NASDAQ:MSFT) ecosystem will be able to work and play. On the other hand, Samsung, Sony, HTC, LG and the rest get left out, though I think Sony Corporation (ADR) (NYSE:SNE) will be fine. Sony’s smartphone has a lot of features differentiating it.
According to rumors, Apple has plans of releasing a lower-end phone model. No one knows whether the iPhone 5S will be the low-end model, or the iPhone 6 will be the low-end model. Apple has a lot of pent-up growth ahead of it as it will be its very first low-end device. The manufacturing of it will be heavily standardized, which will give it large profit margins compared to Samsung. Analysts on a consensus basis anticipate Apple to grow earnings at a 20.88% rate over the next five years.
Conclusion
It is time to dump Samsung and buy Sony Corporation (ADR) (NYSE:SNE). After all, Sony has a lot of pent-up growth ahead of it and has a strong enough product line-up to make it a serious contender against other phones in the Android ecosystem.
I also believe that Apple will grow exponentially if the company releases a low-end phone. The low-end phone will be the company’s first attempt at maximizing its profit potential in emerging markets.
The article Samsung Beaten by Sony at Its Own Game originally appeared on Fool.com and is written by Alexander Cho.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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