Samsung Targets Galaxy 4 at Apple’s Core IPhone Market

March 12 (Bloomberg) -- Piper Jaffray Senior Research Analyst Gene Munster discusses Samsung's mobile phones. He speaks with Cory Johnson on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Samsung Electronics Co. (005930) is making its biggest run yet at the iPhone’s U.S. loyalists, unveiling the new Galaxy S4 a few blocks from Apple Inc.’s flagship store in New York and broadcasting the event live in Times Square.

The debut of Samsung’s marquee smartphone at Radio City Music Hall tomorrow night lets Samsung bring the fight directly to Apple’s strongest market. The South Korean company is relying on an advertising blitz and cutting-edge features, potentially including a snazzier camera and eye-tracking capabilities, to generate the kind of buzz associated with Apple’s products.

Samsung’s challenge is proving it can innovate as effectively as its U.S. competitor. While Apple (AAPL)’s iPhone pioneered the market for touch-screen phones in 2007, Samsung became the smartphone leader worldwide more than a year ago, according to IDC. Apple still remains No. 1 in the U.S.

“The upcoming event in New York has big implications because it’s Apple’s home ground,” said Chung Chang Won, an analyst at Nomura Holdings Inc. in Seoul. “This is the first time Samsung has launched its Galaxy S phone in the U.S.”

The phone will sport a 5-inch screen, slightly larger than the one on last year’s S3, according to two people familiar with the product. The U.S. version will use Qualcomm Inc.’s quad-core chip, giving the phone more processing power to handle multiple tasks at the same time, they said. In other markets, it will rely on Samsung’s “octacore” eight-core chip, the people said.

Photographer: John Sciulli/Getty Images for Samsung

Mayer Hawthorne performs at The Samsung Galaxy Sound Stage at SXSW on March 12, 2013. Close

Mayer Hawthorne performs at The Samsung Galaxy Sound Stage at SXSW on March 12, 2013.

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Photographer: John Sciulli/Getty Images for Samsung

Mayer Hawthorne performs at The Samsung Galaxy Sound Stage at SXSW on March 12, 2013.

Sharper Camera

Galaxy S4, which runs Google Inc.’s Android software, also will have a higher-density, 13-megapixel camera, up from 8 megapixels in the S3, according to the people. The upgrade would put the new Samsung phone well ahead of Apple’s iPhone 5. That device has a dual-core processor, a 4-inch screen and an 8- megapixel camera.

The timing of the S4’s arrival could spell trouble for Apple, which probably won’t have a new phone out until mid-year at the earliest, said Park Hyun, an analyst at Tong Yang Securities in Seoul. Apple’s sales growth last quarter was the slowest in more than two years, a sign the iPhone is losing its edge over other smartphones.

“Its popularity has clearly cooled off,” Park said. The next Apple phone, expected to be called the iPhone 5S, will be out in the late second quarter or early third quarter, he said.

Apple suffered from mapping-software glitches and supply constraints with last year’s release of the iPhone 5. Jefferies & Co. cut its price target for Apple this week, citing concerns the next phone will be delayed because of problems with the device’s casing colors.

More Phones?

The mounting competition puts pressure on Apple to step up its pace of product releases. Since the iPhone’s initial debut about six years ago, the company has held one big phone unveiling each year, with the new product hitting the market in summer or early fall.

“There’s been a drumbeat of rumors about Apple working on more than one version of the iPhone,” said Jan Dawson, chief telecommunications analyst at the New York office of London- based consulting firm Ovum. “The thinking is, if Apple does several devices it would help dampen the singular effect of having only one phone a year.”

Steve Dowling, a spokesman for Cupertino, California-based Apple, didn’t immediately respond to messages seeking comment.

Samsung, meanwhile, faces its own challenges. The company will be selling the S4 into a $358 billion global market that is approaching saturation. Growth is projected to slow to 9.8 percent in 2017 from 27 percent this year, according to data compiled by Bloomberg Industries.

In addition to contending with the iPhone, Suwon-based Samsung has to fend off Chinese rivals offering handsets for $100. The current Galaxy S3 sells for about $200 in the U.S. with a two-year contract.

Eye Scrolling

The crowded market has prompted Samsung to add more gee- whiz features, rather than just improving basic specifications. With last year’s S3, for instance, it added a function that lets users exchange information by bumping their phones together.

This year, speculation has centered on eye-scroll technology, which would track eye movements to let users scroll through articles based on where they’re looking on the screen. The New York Times reported earlier this month that the Galaxy S4 will include such a feature, citing a Samsung employee.

People familiar with the device disputed that idea this week, saying that eye scrolling won’t be in the Galaxy S4, though it may appear in future versions of the phone. There will be more simplified uses of eye-tracking technology, such as the ability to pause videos when the user’s eyes move away from the screen, the people said.

Galaxy Note

While Apple relies on just the iPhone, Samsung’s phone lineup includes cheaper models with basic features. It also has the Galaxy Note, a cross between a phone and a tablet that lets people write on the screen. Even though Apple released a smaller iPad tablet last year, it doesn’t have a direct competitor to the Note, which is sometimes called a “phablet.”

In all, Samsung sells about a quarter of all mobile phones globally, according to research firm Strategy Analytics. It shipped 213 million smartphones in 2012, compared with 135.8 million for Apple and 35 million for Nokia Oyj. (NOK1V)

The company boosted fourth-quarter profit by 76 percent to 7.04 trillion won ($6.4 billion) as its mobile-phone unit more than doubled operating profit. In the same period, Apple reported profit that was little changed from a year earlier.

Samsung’s stock has outperformed Apple shares as well, especially in the past year. Samsung has gained 25 percent in the trailing 12 months, compared with a 22 percent decline for Apple. The Standard & Poor’s 500 information technology index has gained less than 1 percent during that period.

Samsung’s Premium

Investors are buying Samsung’s shares at a 3 percent price- to-earnings premium over Apple. That’s a reversal: For most of the past five years, Apple was the one with a premium.

Samsung is counting on mobile phones to continue driving earnings, especially as it contends with falling prices in its TV business and a stronger Korean currency.

“We expect handsets to remain its biggest source of growth,” Dohoon Lee, an analyst at CIMB Group Holdings Bhd (CIMB) in Seoul, said this month in a report. He recommends buying Samsung shares. “We expect Samsung’s flagship models to enjoy snowball effects, taking further market share at the high end.”

JJ Park, an analyst at JPMorgan Chase & Co., predicts the S4 will be a catalyst for Samsung’s share price. The company is likely to ship 70 million to 80 million units by the end of this year, he said in an e-mail.

This week’s event may give a sense of how many of those sales come from the U.S., where the allegiance to the iPhone remains strong, said Warren Lau, an analyst at Kim Eng Securities Ltd. in Hong Kong.

“Consumers in North America are still very much drawn to iPhones,” he said. “Samsung has chosen Radio City Hall in New York City -- a premier location in Manhattan which can house 5,000 people. This is a pretty big deal.”

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Robert Fenner in Melbourne at rfenner@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net; Nick Turner at nturner7@bloomberg.net

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