Samsung (OTC:SSNLF) and Apple (NASDAQ:AAPL) are the No. 1 and No. Three smartphone manufacturers by world items bought, respectively — although Apple’s premium model permits it to take residence the lion’s share of the business’s income.  Because the smartphone is maybe a very powerful technological machine to date this century, most buyers know these two large-cap firms because it pertains to this intense rivalry.

But whereas most customers view Apple and Samsung as smartphone firms, it could really be the opposite components of every firm’s enterprise that the majority defines and distinguishes them. Subsequently, should you’re pondering of shopping for inventory in one in all these two market leaders, it’s worthwhile to perceive their nonsmartphone companies. That can assist decide which inventory is the higher purchase on your portfolio right this moment.

Apple’s enterprise mannequin: From {hardware} to companies

Maybe a very powerful distinction between these two firms is that Apple is rather more of a shopper model and ecosystem, whereas Samsung is extra of an industrial conglomerate with giant economies of scale.

Right here is Apple’s income breakdown by product final quarter:

Product Share of total income
iPhone 48.3%
Mac 10.8%
iPad 9.3%
Wearables 10.3%
Companies 21.3%

Information supply: Apple fiscal yr Q3 2019 financials launch.

What most distinguishes Apple is its rising companies division. As you may see, its companies, which embody Apple Care, Apple Music, iCloud, and commissions from the App retailer, garnered simply over 20% of income final quarter and grew nearly 13% yr over yr. Inside that income base are additionally about 420 million recurring paid subscriptions, which the market tends to worth greater than {hardware}. As companies and subscriptions develop as a share of Apple’s total income base, the corporate might start to garner a better a number of available in the market. 

Nonetheless, Apple is about to unveil much more companies this yr, with 4 main new companies simply hitting, or about to hit, the market: Apple Information+, Apple Arcade, the Apple bank card, and Apple TV+. These 4 new companies have the potential to tremendously increase Apple’s companies contribution going ahead.

As well as, CEO Tim Cook dinner can be fairly bullish on Apple’s healthcare initiatives. Whereas well being monitoring is not a giant moneymaker as of but, Cook dinner has stated that years from now, Apple could also be greatest recognized for its contribution to well being companies, much more so than its telephones.

The Apple-Samsung rivalry is about greater than cellphones. Picture supply: Getty Photos.

Samsung’s enterprise mannequin: Chips and semiconductors dominate

Samsung is Korea’s largest firm, a sprawling conglomerate spanning telephones, shopper home equipment, and, most significantly, reminiscence and semiconductor chips. As you may see, smartphones aren’t even Samsung’s major revenue heart.

Product unit Share of income Share of working income
Client electronics (TVs, screens, fridges, air conditioners) 19.7% 10.8%
Data know-how and cellular (cellphones and computer systems) 46.1% 23.6%
Semiconductors (reminiscence chips and foundry) 28.7% 51.6%
Shows (LCD and OLED panels) 13.6% 11.4%
Harman (related automotive programs) 0.4% 1.4%

Q2 2019. Information supply: Samsung quarterly filings. Income equals greater than 100% attributable to inter-segment income. 

Whereas practically half of Samsung’s income comes from the cellular phase, it accounts for just below 1 / 4 of Samsung’s working income. The numbers are successfully reversed for Samsung’s semiconductor enterprise. Not solely that, however the semiconductor business is presently within the midst of a nasty downturn. Thus, the above outcomes might be tremendously underrating the significance of reminiscence chips to Samsung’s total fortunes.

For example, within the second quarter of 2018, simply over a yr in the past, semiconductor costs had been booming, and the semiconductor phase really made up 78% of Samsung’s working revenue. Not solely that, however its working revenue was greater than double that of the current quarter, at 14.9 trillion received, versus final quarter’s 6.6 trillion received. 

Subsequently, Samsung’s income are rather more tied to the wildly cyclical DRAM and NAND flash markets, that are topic to booms and busts than they’re to smartphones. This often causes Samsung to earn a decrease valuation a number of than Apple. Whereas Apple’s {hardware}, particularly the iPhone, is topic to its personal cycles, they aren’t practically as extreme as Samsung’s semiconductor enterprise.

Valuation comparisons

Although each shares commerce under total common market multiples attributable to their reliance on {hardware}, which Wall Avenue values decrease than software program, Samsung is clearly cheaper Apple. Nonetheless, each firms have glorious stability sheets and in addition pay out wholesome dividends to buyers. 

Metric Apple Samsung
P/E ratio* 19.0 10.7
Dividend yield 1.41% 2.93%
Internet money $102 billion $70 billion
Internet money as % of market cap 10% 26%

Information supply: Yahoo! finance, Apple and Samsung quarterly filings. * TTM = trailing 12 months.

Apple’s valuation can also profit from the truth that it is a little more shareholder-friendly than Samsung. For example, Apple has been very aggressive in repurchasing its personal shares, whereas Samsung solely purchased again a tiny portion of inventory in 2018, a “increase” yr for semiconductors, and hasn’t purchased again any inventory in 2019. This can be as a result of controlling possession by the Lee household. Along with hoarding money on the company stage, the Lees have additionally added an enormous quantity of complexity to Samsung’s possession construction, via sophisticated round possession of Samsung’s many separate (however managed) subsidiaries.

In the meantime, Apple has been the epitome of shareholder-friendliness, returning a whopping $50 billion to shareholders through buybacks, or about 5% of the present market cap, over the previous 9 months alone. Apple can be planning to return much more, with the clear, acknowledged purpose of turning into money impartial (money equal to debt) over time. The capital allocation insurance policies have earned plaudits from none aside from Warren Buffett, who has made Apple his largest public fairness place.

Samsung is for top reward, Apple for decrease threat

I believe each firms are presently glorious values, however buyers with a decrease threat tolerance ought to in all probability go for Apple. The corporate’s outcomes are much less unstable, and its company governance is way, a lot better.

As well as, it’s also considerably troublesome to commerce Samsung’s inventory. There aren’t any authorized world depositary receipts (GDR) on U.S. exchanges — Samsung GDRs are solely listed on the London Inventory Change (LSE), although many U.S. brokers have entry to the LSE. You may additionally commerce Samsung straight on the Korea Inventory Change, the KRX, however to take action, you might have to open an account with a Korean dealer or a particular affiliated financial institution.

Nonetheless, assuming you might be keen to endure the buying and selling complications and cyclicality in Samsung’s enterprise, its shares do look like a compelling worth proper now. However so are Apple’s, and proudly owning Apple is a way more stress-free expertise.

Supply hyperlink