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Jan 28, 2013 06:07 PM IST | Source: ft.com

Samsung versus Apple phones

There are few companies anywhere for whom allotting "only" $22bn for capital spending could be thought a wobble. Samsung is one of them. Put this decision not to raise its capex budget next to a cautious outlook for phone sales - and Apple's so-so profits growth - and this has not been a good week for the world's favourite phonemakers.


There are few companies anywhere for whom allotting "only" $22bn for capital spending could be thought a wobble. Samsung is one of them. Put this decision not to raise its capex budget next to a cautious outlook for phone sales - and Apple's so-so profits growth - and this has not been a good week for the world's favourite phonemakers.


Apple's one-tenth slide and Samsung's post-earnings stumble - off 2.5 per cent on Friday - have left the two stocks closer in average price-earnings terms, at 10 and 8 times 2013 profits respectively, than at any time since Samsung launched its first iPhone-chasing Galaxy smartphone in 2010. The past month is also the first time the world's biggest tech company by sales has outperformed its US rival over a one-year period since before the 2008 financial crisis.


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Phones are not everything to either, but both have taken between them half the global market by units, and more than nine-tenths of the available profits. In that light, Samsung's warning of intensifying price competition from a slew of new products and a sales slowdown in developed markets is bound to hurt. Apple should be the bigger sufferer, however, because its high-end strategy has sidelined it in fast-growing emerging markets, where Samsung sells cheaper models. Apple's revenge, as such, can perhaps be seen in Samsung's capex caution.


A key factor in its plans will be whether Apple, its biggest client, moves its application processor chip orders - the "brains" in tablets and smartphones - away from its rival. Only nine groups have spent more on capex than Samsung in the past 12 months, according to Capital IQ data. And regardless of Apple's decision, it will continue to invest in its vast chipmaking operations. Last year it beat Apple to become the world's top chip consumer, according to Gartner. Making so many of them itself will at least help compensate if it is right about smartphones.

Email the Lex team in confidence at lex@ft.com

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