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Former Apple CEO Acknowledges Samsung as Apple’s Formidable Foe

John Sculley and Steve Jobs

[Photo Credit: CNN Money]

Apple has spent the last five years selling its iPhone at the expensive end of the line, charging $200 for its contract smartphones and $649 for its off-contract smartphones. For years, carriers have listened to Apple and given in to Apple’s demands. As of late, however, some carriers (European) have decided to go against Apple’s demands and have canceled their agreements with Apple because they refuse to continue paying Apple’s exorbitant subsidies for a smartphone that, well, seems to be outpaced by its strongest competitors (I’m thinking Samsung here). One Russian carrier decided to terminate its agreement with Apple and go its own way because of carrier subsidies. Carrier terminations, coupled with declining stock prices (even when they seem to go up a little, they are not rebounding to where they were four months ago), have combined to force Apple to produce a low-cost iPhone in order to reach not only consumers in new markets, but even many consumers in the United States. The days of the $649 iPhone are starting to come to an end.

There has been much discussion about Apple’s stock, with some saying that there’s nothing wrong while others say that everything is wrong. Some have said that Apple’s stock is simply going the way it is because Apple’s supply is catching up with consumer demand; Apple’s profits at the end of Q1 2013 should prove everyone wrong about Cupertino. Others believe that the lowering of investor confidence (as evidenced in declining stock predictions and claims of “sell” or “neutral” instead of “buy” last month) demonstrate that Apple is in dire straits. Whatever side you stand on in this entire debate, Apple fanboy or not, there is one true fact: the numbers do not lie. There is not one stock that declines from $700 to $500 in a three or four-month time because of supply/demand issues, customers waiting for a new smartphone, or a bad market day. There are bad market days with stocks, but these days soon rebound and the stock returns to some normalcy. With Apple, it’s glory days in September have not returned – the last four months have done nothing but confirm the worst. To use the words of Dan Graziano over at Yahoo.com, “Apple’s iPhone business may have already peaked.”

To add to the “sting” of Apple’s Q4 2012 loss to Samsung ($8.3 billion vs. $8.2 billion, respectively), former Apple CEO John Sculley verbally plunges the knife even further in the company’s chest with his words about Samsung:

“Samsung is an extraordinarily good competitor. The differentiation between a Samsung Galaxy and iPhone 5 is not as great as we used to see.”

In other words, Samsung has closed the gap between the quality of its smartphones (once poor) and that of the iPhone 5. This is a compliment for Samsung and an embarrassment for Apple. Samsung’s Galaxy S3 has done what no other enemy smartphone could do: it has shown consumers that there are greater horizons out there in the tech industry than what Apple has given its customers. In other words, Apple ran with its iPhone in 2007 as the smartphone of all smartphones. The iPhone set the standard for what consumers want in a smartphone. Now, however, six years later, consumers have gotten over the “wow” of the basic touchscreen smartphone and want something more. Samsung has provided that expectation – and now, investor confidence and the stock market have finally caught up to what consumers have known and believed, all along.