Apple's higher standard: How 51M iPhones is somehow disappointing

Hundreds of people await the iPhone 5S and 5C launch in September at Apple's Fifth Avenue store in Manhattan.

(Credit: Sarah Tew/CNET)

Only Apple could post record smartphone and tablet sales and still leave investors grumpy.

But that's exactly what happened late Monday, when the Cupertino, Calif., company reported selling 51 million iPhones and 26 million iPads. Champagne time, right? Well, Wall Street wasn't in the mood, as it was looking for sales of 55 million iPhones and a rosier revenue forecast for the current quarter.

Shares dropped 7.6 percent to $508.60 in recent trading Tuesday, after falling as much as 8 percent late Monday.

Call it a consequence of the Apple halo effect, expectations that are set improbably high because of its track record of slick, highly coveted products, and Wall Street's need to see the next blockbuster around the corner. One analyst even asked CEO Tim Cook if he still considered Apple a growth company (Cook, for his part, said that he's very confident of year-over-year growth and that underlying results are better than they appear).

It has been several years -- since the first iPad in 2010, in fact -- since Apple has defined a new product category. It's believed to be working on a wearable device and a new TV product, as well as offerings such as mobile payments, but so far, those are just rumors. Analysts have to take Apple's word that it has "great things" in store for later this year -- a refrain they've heard many times over the past few years -- but that's becoming harder for some to do.It may seem downright silly to punish Apple following a quarter when it sold more smartphones than every rival (besides Samsung) did during all of 2013. But Wall Street isn't looking at what happened last quarter; that's old news. It's more concerned about what could happen this quarter and the next and the next. And it's afraid that Apple might have lost its mojo.

"The big question is: Are analysts right to be so pessimistic, or should they trust that Apple ... will launch a new product this year to get growth going again?" Jackdaw Research chief analyst Jan Dawson said. "At this point, it's a matter of faith."

Until those great new things emerge, analysts have to rely on iPhone and iPad sales to bolster their confidence. Unfortunately for Apple, blockbuster phone and tablet sales are no longer enough, and days of such high growth rate may be behind not only Apple but the entire high-end smartphone market.

In developed markets like the US, almost everyone who wants a smartphone has one. And the tablet market is maturing as well. That means Apple, Samsung, and all others in the mobile industry have to look to emerging regions like China for growth. Apple now has a bigger presence in that country with its China Mobile partnership, but it could take some time for sales to really take off on the world's biggest network with three-quarters of a billion subscribers.

Cook said late Monday that the iPhone on China Mobile only works in the 16 cities that have 4G. The carrier plans to expand 4G to more than 300 cities by the end of the year, but iPhone sales on that network could be sluggish for a while. Analysts had been counting on China Mobile subscribers to buy about 15 million to 30 million iPhones this year.

Behind Samsung's push to rule the world

Samsung wants to be all things to all people. CNET's Shara Tibken went to South Korea to discover how it does just that.

A display in Samsung's phone museum in Gumi, South Korea, shows every mobile device the company has made over the years. It builds dozens of models annually but now focuses its line around its Galaxy Android smartphones.

(Credit: Shara Tibken/CNET)

Editors' note: Be sure to catch the other stories in this package: on the many pieces of Samsung Group's empire, on road-testing Samsung's S Translate app, on TVs and appliances in a Q&A with co-CEO Boo-keun Yoon, and on how Samsung torture-tests its products.

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SEOUL, South Korea -- "It sounded like a toilet."

Samsung Electronics sound designer Myoung-woo Nam is describing the not-quite-right noise his team created for the Galaxy S3, at least initially. Here, in a dimly lit room on the eighth floor of a Samsung skyscraper, in the heart of Seoul's trendy Gangnam district -- yes, that Gangnam -- a team of audio designers create sounds to capture what they describe as the overall theme of the device, whether it's for a Galaxy phone or the just released Samsung Galaxy Gear.

Each has its own challenge. Some sounds require a 40-piece orchestra; others come about using household items such as straws and drinking glasses, which ultimately solved the toilet problem. But more on that in a moment.

For its follow-up phone, the Galaxy S4, the team wanted to create "the sound of light." It used synthesizers, and then, as it always does, tailored tones for different parts of the world. After all, what's pleasing in one country might offend in another -- as Samsung discovered when Japanese women thought a whistle it considered using for messaging on the Galaxy S4sounded like a catcall.

It's a strategy that, over the past few years, has helped Samsung soar to the top of the smartphone world. Unlike its fierce Cupertino, Calif., rival, Samsung wants to be everything for everyone. A bigger screen? You can get it from Samsung. A stylus? Sure. Want a flip phone? No problem.The takeaway? Details matter. A lot. As Sujin Park, a senior member of Samsung's design strategy team, put it to me, "Localizing is our strategy."

This is the Samsung Way: Do it all, and do it fast. Really fast, even if you're following the market Apple created and sometimes, as a jury determined, stealing its ideas. In the year it takes Apple to release a new iPhone, Samsung typically unveils three or four "flagship" products, adding up to several dozens in all. That speed, coupled with its fierce commitment to quality and marketing heft, has lifted this sprawling South Korean empire from niche player status in just half a decade.

Now, Samsung has added something else to its playbook: Do it first. The Galaxy Gear, its big push into wearable tech, came out while the pundits were still guessing about what Apple might do. And in early October, Samsung introduced the Galaxy Round, a smartphone with a curved display bent at the vertical axis. The Gear is off to a slow start, to put it kindly, and who knows if people will care about the Round's quasi-tubular look. But to the top brass at Samsung, it almost doesn't matter.

Young-hee Lee, head of global marketing for Samsung's mobile division (left), and designer Zac Posen display the Samsung Galaxy Note 10.1 in New York on Aug. 15, 2012.

(Credit: AFP/Getty Images)

"The idea is to be the fastest company," said Young-hee Lee, who heads marketing for Samsung's mobile business and, since joining from L'Oreal in 2007, has helped make the brand recognizable the world over. "React is not the proper word anymore. We should lead."

Seeking world domination
One way Samsung is trying to do that is through sheer heft. The company employs an army of 62,000 engineers, just short of the entire population of Palo Alto, Calif., and it markets their efforts like few others.

This year, Samsung -- which generated $210 billion in revenue over the past four quarters, roughly $40 billion more than Apple -- is on track to spend more than half a billion dollars on advertising in the US alone. That's about what Apple spends, but more than Nokia, HTC, and BlackBerry -- which made its big comeback push earlier this year -- combined, according to market research firm Kantar Group.

"The idea is to be the fastest company. React is not the proper word anymore. We should lead."
--Young-hee Lee, Samsung executive vice president and head of marketing for mobile

In part, Samsung is trying to combat the free attention Apple gets from its cult-like following -- a phenomenon that drives people inside Samsung nuts. For the latest iPhone launch, spies from Samsung's parent company visited a New York Apple store to try to understand just why so many people line up for hours, even days, in advance.

And on the day Apple unveiled the iPhone 5, just more than a year ago, a team of Samsung execs watched the event from a Wolfgang Puck restaurant in Los Angeles, turning it into a sort of war room. By the time Apple CEO Tim Cook wrapped up his presentation, according to Fortune magazine, the Samsung gang had drafted the beginnings of an ad campaign against Apple. When the iPhone 5 hit the market a week later, Samsung launched a TV spot mocking Apple fanboys.

Marketing only gets you so far, of course. You need great products, fierce R&D, and a manufacturing process that's fast and efficient -- all of which Samsung has developed through an approach that's uniquely Samsung: It does almost everything -- from building the parts to assembling the devices -- in house. That's made this sprawling enterprise surprisingly nimble.

"It all comes down to execution," says Mark Newman, an analyst with Sanford Bernstein who worked in business strategy at Samsung between 2004 and 2010. "Nobody else has been able to do this.

Apple, the biggest loser in the Google-Motorola-Lenovo deal

The iPhone maker will now face a more focused Google, as well as a stronger Lenovo. Both could cause problems for Apple down the line.

Lenovo executives show off several of the company's new smartphones during an event in June in India.

(Credit: Getty Images)

Things are about to get tougher for Apple.

Google late Wednesday made an unexpected announcement that it's selling Motorola Mobility to Chinese PC giant Lenovo for $2.91 billion, or less than a quarter of what it paid for the handset vendor just a couple of years ago. During the years Google owned it, Motorola lost money and market share, and the relationship caused tension between Google and the other Android vendors, particularly Samsung. It also led those other phone makers to develop their own software and services, rather than push those from Google. That amplified Android's fragmentation in the market.

Overall, Google's purchase of Motorola turned out much better for iPhone maker Apple than for Google. That's now going to change.

"Getting rid of Motorola helps Google, and anything that Google can do to create a more cohesive user experience across vendors is competitive to Apple," Current Analysis analyst Avi Greengart said.Google, sans Motorola, can go back to focusing on what it does best -- making a really great operating system and apps. It canmend its relationship with Android leader Samsung and the other vendors. And it canconcentrate on unifying and streamlining theAndroid experience, rather than worry about bolstering its own hardware operations. All of those factors mean that Apple may not be able to win over customers as easily as it has in the past.

But Google isn't all Apple should be worried about. Up to this point, only Samsung has posed a real threat to Apple in smartphones. A combined Lenovo and Motorola, however, has the potential to take a large chunk of the market. It won't be easy or quick, but Lenovo has a strong track record for dominating markets it enters. Less than a decade after buying IBM's PC operations, Lenovo became the world's biggest PC maker.

Already, Lenovo is one of the fastest-growing smartphone makers in China, a market that's also getting a lot of attention from Apple. Last year, Lenovo was the second largest smartphone vendor in mainland China by volume, up from eighth place in 2011, according to Strategy Analytics. That boosted its position in the global market in 2013 to fifth place behind Samsung, Apple, Huawei, and LG.

At the same time Lenovo's market share has risen in China, Apple's has fallen. In 2011, Apple was the third largest smartphone vendor in the country. By last year, it had dropped to sixth place, according to Strategy Analytics.

"Apple's lack of presence in the lower end of the smartphone market has cost it sizable volumes in China in recent years," said Neil Mawston, executive director of Strategy Analytics.

Apple, predictably, has offered no public reaction to the Lenovo-Motorola news. We've contacted the company for comment and will update the report when we have more information.

Canon misses profit forecast on poor digital camera sales

TOKYO: Japan's Canon said Wednesday that it missed its full-year profit target due to slumping demand for its digital cameras as consumers increasingly turn to smartphones for taking pictures.

The company reported that net profit rose 2.6 percent last year to 230.5 billion yen ($2.2 billion) thanks to a weak yen and cost-cutting efforts, but that figure missed an earlier prediction for a 240 billion yen profit.

Revenue rose 7.2 percent to 3.7 trillion, while Canon said it logged a 4.1 percent rise in operating profit to 337.3 billion yen.

Unlike many Japanese firms which report on a fiscal year ending in March, Canon reports on a calendar-year basis.

Rising profits were mainly due to "the effects of ongoing cost-cutting efforts along with the depreciation of the yen," it said in a statement, adding that it saw "steady sales growth for office multifunction devices and laser printers".

Japanese exporters have benefited from the yen's sharp decline over the past year as it inflates their repatriated income and makes them more competitive overseas.

Canon and Japanese rivals including Sony and Olympus have seen a big drop in demand for their digital imaging products as camera-equipped smartphone sales boom.

For 2014, Canon said it expected to earn a net profit of 240 billion yen and an operating profit of 360 billion yen on sales of 3.85 trillion yen

US company buys Armenian power plants in $250mn

YEREVAN: US power company ContourGlobal said it will acquire three hydroelectric power plants in Armenia in a $250 million deal.

The company said it had bought the Vorotan Hydro plants for $180 million and planned to invest an additional $70 million, making it the largest single US private investment in the Caucasus country of 3.8 million.

The deal may decrease Armenia's dependence on Russia, Yerevan's main trading partner and biggest foreign investor which is due to boost its control over the country's natural gas infrastructure.

The Vorotan Hydro Cascade complex is a series of three hydroelectric power plants totalling 405 megawatts on the Vorotan river in southern Armenia.

It accounts for about 15 percent of Armenia's power capacity and provides energy for 250,000 homes. A long-term power purchase agreement was signed on Wednesday between ContourGlobal and the Armenian government.

The agreement says the company will invest $70 million over the next six years in a refurbishment programme to modernise the plants and improve their performance and safety.

Armenia plans to join a customs union led by its former Soviet master Russia and has approved a deal under which the Russian state gas export monopoly Gazprom will take over full ownership of its subsidiary ArmRosgazprom, by acquiring the remaining 20 percent of shares from Armenia.

Russia has invested $3 billion in the country with a GDP of $9.9 billion in 2012, according to the World Bank.

India’s Hero MotoCorp profit rises 7.5pc, misses estimates

MUMBAI: Hero MotoCorp, India's largest two-wheeled vehicle maker, posted a slower-than-expected 7.5 percent rise in third-quarter profit, hurt by a rise in input costs and currency fluctuations.

Net profit was 5.25 billion rupees for the fiscal quarter ended December, compared with 4.88 billion rupees a year earlier, Hero said in a statement on Thursday.

Analysts on average expected a net profit of 6.04 billion rupees, according to Thomson Reuters I/B/E/S.

Net sales rose 11 percent to 68.8 billion rupees. Sales in volume terms rose 6 percent from a year earlier. Since its 2011 split from Japan's Honda Motor Co, Hero has been investing heavily in technology to develop new bikes.

The company, like rival Bajaj Auto Ltd, has been pushing sales abroad to make up for the shrinking market share at home.

"We expect the market leader to wilt under sustained pressure from Honda and in our opinion there is too much is riding on new product launches from its untested greenfield platform," Nitesh Sharma an analyst with Espirito Santo Securities said.

Qualcomm posts higher 1st-quarter revenue, says year on track

SAN FRANCISCO: Leading mobile chipmaker Qualcomm Inc posted higher fiscal first-quarter revenue that slightly missed expectations as smartphone growth shifted to China but it bumped up its full-year earnings outlook on the strong start to 2014.

With growth in the smartphone industry moving away from wealthy markets such as the United States and toward China and other emerging economies, where consumers favor less expensive devices, Qualcomm has been focusing on costs to preserve its profit margins.

Qualcomm slightly raised its full-year forecast for earnings per share to a range of $5.00 to $5.20, from $4.95 to $5.15, essentially adjusting for first-quarter earnings that came in above the company's own previous estimate.

"We raised the full-year EPS guidance but really just to reflect the positive results of Q1. We see the rest of the year playing out pretty much in line with our original expectations," Chief Financial Officer George Davis said in an interview.

Qualcomm had first-quarter net income of $1.88 billion, down 2 percent. GAAP diluted earnings per share were $1.09. Its non-GAAP earnings per share were $1.26, above its previous forecast of between $1.10 and $1.20.

On Monday, lower-than-expected holiday iPhone sales and a weak revenue forecast by Apple Inc renewed fears on Wall Street about Chinese demand and a tepid global market.

While the majority of Qualcomm's revenue comes from selling baseband chips that let phones communicate with carrier networks, most of its profit comes from licensing patents for its ubiquitous CDMA cellphone technology. As phone prices edge lower, Qualcomm receives less royalty revenue.

Average prices for cellphones in the September quarter, used to calculate licensing revenue for Qualcomm in the December quarter, were between $219 and $225, the company said.

The chipmaker on Wednesday reported first-quarter revenue of $6.62 billion, up 10 percent from the year-ago period. Analysts on average had expected first-quarter revenue of $6.665 billion, according to Thomson Reuters I/B/E/S.

It said revenue in the fiscal second quarter, which ends in March, would range from $6.1 billion to $6.7 billion.

Analysts on average had expected first-quarter revenue of $6.665 billion and second-quarter revenue of $6.723 billion, according to Thomson Reuters I/B/E/S.

Qualcomm shares were up 2.8 percent in extended trading after closing down 1.21 percent at $71.12 on Nasdaq.