Apple Blames Samsung and Android for iPhone’s Decline


The latest round of litigation between Apple (NASDAQ:AAPL) and Samsung (SSNLF.PK) has unearthed a set of documents on Apple’s smartphone planning for fiscal 2014 that the company may not have wanted the public to see, and all but confirm the company will unveil a large-screen iPhone when the next generation device comes out. Several publications including Forbes and Re/code have highlighted this particular set of slides, which were included as a part of Samsung’s cross examination of Apple senior vice president Phil Schiller. According to Forbes, Schiller said he does not agree with the document and that it does not represent Apple’s policies.

The slides show a company under increasing threat from Android-based phones, in particular the high-quality ones made by Samsung. A graph shows the decline of iPhone growth from 2009, dropping from 109 percent year-over-year in 2009 to just 8 percent in the fiscal third-quarter of 2013. A later slide blames the decline on the growth of Google’s (NASDAQ:GOOG) (NASDAQ:GOOGL) Android operating system. Apple said that for consumers “the strongest demand [is] coming from less expensive and larger screen smartphones,” a market that Samsung phones running on Android have dominated.

Apple goes on to say that Android and other competitors “have drastically improved their hardware and in some cases their ecosystems.” Apple’s competitors have also been “spending ‘obscene’ amounts of money on advertising and/or carrier/channel to gain traction.” The presentation concludes with a slide saying “consumers want what we don’t have,” pointing out that the recent growth in the smartphone market has been driven by devices with screens larger than four inches.

Bigger and cheaper seems to be the way to go, and even though Apple fancies itself a high-end maker of consumer electronics, these slides suggest that it will bow to the market trends it blames for the sales decline. This supports rumors from a variety of sources that the iPhone 6 will come in a larger size.

An email seen by The Wall Street Journal that was sent by Schiller to an advertising agency executive and was made public by the litigation also shows a company feeling increasingly threatened by Samsung. The email said Samsung is like “an athlete who can’t miss because they are in a zone while we struggle to make a compelling brief. … Something drastic has to change.”

Apple and Samsung are the two dominators of the entire smartphone industry. Research has shown that the two companies alone account for over 100 percent of the profits made by the industry. The arch rivals have been involved in drawn-out patent litigation for several years, with suits and counter suits keeping them in court constantly. In the latest patent battle, Apple wants Samsung to be fined $2 billion for allegedly copying some of the iPhone’s most distinctive features. Samsung has turned the blame towards Google, saying that the features Apple has issues with are related to the Android operating system, not Samsung-designed hardware.

Apple isn’t the only one feeling the pinch of an over-saturated and extremely competitive market. Other internal documents from Samsung said that, “Beating Apple is [the] No. 1 priority (everything else must be in the context of beating Apple)” as the “threat from Apple is extremely real and urgent.” Whether or not Samsung phones now better appeal to consumer tastes, the company had better hope it can win in court or else it will face a whopping $2 billion fine.

Follow Jacqueline on Twitter @Jacqui_WSCS