Introduction
The 2020 annual report for the two leading tech giants – Apple and Samsung demonstrated a fascinating picture when it comes to income generated. While the overall gross profit figures for these companies was comparable to one another, the net operating income figures where vastly different. This article will analyze why the companies have vastly different net operating incomes, despite the similar gross profits and what implications it has for investors in the future.
Revenue Comparison
When comparing Apple’s and Samsung’s annual reports, there is a striking amount of similarity between them. For example, the overall gross profits of the two companies were comparable, with Apple generating over $274 billion in revenue against Samsung’s $206 billion in 2020. However, the actual operating income differences were quite stark, with Apple posting an operating income of over $87 billion while Samsung managed to produce only $9 billion.
Cost Comparison
For two companies with such similar gross profit figures it is curious to see the differences in operating incomes. A closer examination of the figures shows that Samsung has a much higher cost of sales than Apple, even accounting for Samsung’s cost of producing goods. For example, Apple’s total cost of goods sold is about 15.2% of its overall revenue compared to Samsung’s 32%.
Implications for Investors
The implications of the disparity between these companies are clear for investors. If these companies maintain a similar gross profit yield, then it is likely that Apple will continue to produce a much higher operating income than Samsung. This means that Apple will have more capital available to reinvest into research and development, marketing, expansion, and other initiatives that will give it a competitive advantage in the future. In addition to the increased earnings potential, Apple is also likely to experience an appreciation in its stock price due to higher future earnings potential.
Samsung Profits Outpace Apple: Reviewing Two Quarters of Comparable Profit Figures with Dramatically Differing Results
Two quarters in a row have seen Samsung post a profit greater than Apple’s, the most recent quarter coming in at $7.6 billion versus Apple’s $7.5 billion. Despite the higher revenue for Apple, Samsung’s combination of selling and administration expenses was substantially higher. This is crucial when it comes to net operating income which, in the last quarters, has been distinctly varying between the two supposedly comparable tech giants.
Apple’s gross margin, as outlined in the most recent quarter, was 42.2%. Samsung, on the other hand, reported a lower percentage of 36%. However, Samsung’s profit ran significantly higher than Apple’s when it comes to sales. In the last quarter, Samsung accounted for 64% of the reported operating profit despite only making up 36% of the sales.
Why the Difference?
It is worth noting that Apple had higher revenue to lower expenses as compared to Samsung, yet the end result was a higher operating profit for the latter company. This could be attributed to a variety of different factors. Ultimately, Samsung was able to utilize better strategies to promote, advertise, and market their products. This created considerable demand and a subsequent boost in both sales and profit. In addition, data storage could have been an influencing factor in the case of Samsung, the latter making considerable strides in jumpstarting their pursuit of 5G technology; a development that has been critical to their success over the past few years.
The Growing Popularity of Samsung Products
It is also essential to consider the increasing popularity of Samsung products and the subsequent surge in revenue. This speaks volumes to Samsung’s ability to capture larger markets, pay attention to their consumers’ needs, and design thorough customer service for their recently launched products. Such products have included the Note20 and S20 series of smartphones, which enjoyed the usual period of success Pitt Samsung products tend to experience soon after their launch. Moreover, the Samsung T7 Portable SSD is a product that has enjoyed tremendous success in the market as the fastest SATA provided by a company.
The increase in popularity for Samsung products implies the company’s solid focus on the use of technology and their successful blend of consolidating their efforts in the right places. This speaks to the sense of consumer-focused approaches to business along with forward-thinking business strategies that make the most effective use of their resources. In combination, this created a propelling effect over the course of two quarters, evidenced by the vastly differing pre- and post-tax operating income.
Ultimately, the comparison between these two quarters of such similar gross profit figures has resulted in two Izmet unmatched net operating incomes. It can be concluded that the success of Samsung is owed largely to their effective use of technology, customer-centric strategies, and marketing approaches that have helped them outpace Apple in the two most recent quarters.
