Apple has "misinterpreted the demand" in China and needs to lower the price of its iPhones to compete, an analyst told CNBC, suggesting Samsung is better-placed to deal with changes in the smartphone market.
The U.S. technology giant has struggled in China, in spite of singing up with the biggest domestic carrier . The tech giant's second-quarter revenues fell 26 percent year-on-year in the region. Apple has been challenged by a revival of interest in Samsung's premium devices, a big push from Huawei in the high-end smartphone space and smaller players such as OPPO creating low-cost but high-spec devices.
Globally, three of the top five smartphone vendors are Chinese.
Peter Garnry, equity strategist at Saxo Bank, suggests investors go long Samsung and short Apple.
"We are going to see more commoditization of this industry where consumers will be more sensitive to price and not features and the premium status which has been the key features for the iPhone so far. So if you look at the challenges in Asia, it's quite clear that Apple misinterpreted the demand and there is excess inventories now of iPhones," Garnry told CNBC.
He said that local Chinese device makers were offering products that are 40 percent cheaper than Apple but "on-par" in terms of quality.
"I think Apple is getting squeezed in China, I don't think they can compete unless they really sacrifice their premium perception in the market and actually lower their price point. And I think this whole commoditization plays into the hands of Samsung because they already compete in commoditized markets across semiconductor, TV panels…and they are very very good at this," the strategist added.
Shares of Apple have been hammered and are down around nearly 8 percent year-to-date. Samsung's South Korean-listed shares however are nearly 12 percent up in the same period.
"We have to look into mid-2017 before we really get some action in Apple and for the next couple of quarters it'll be all about weakness, market share losses in Asia," Garnry warned.
Samsung has also been looking to grow beyond smartphones with new product categories such as virtual reality and Internet of Things devices. On Thursday, the South Korean electronics giant announced that it had acquired a cloud computing company called Joyent.
"Samsung will now have access to its own cloud platform capable of supporting its growing lineup of mobile, Internet of Things (IoT) and cloud-based software and services," the company said in a statement.
Facebook 'undervalued'
The analyst also said that he though Facebook's stock was undervalued, despite a price to earnings ratio of 70 times. This compares with a nearly 11 time P/E ratio for Apple. Garnry said that investors who think the stock is expensive are "miscalculating the compound of growth" of the social networking giant.
"You cannot find a company on this planet, of this size, that are growing with these growth rates and the profit margins are phenomenal and could easily expand if they cut back a little bit on capex or R&D," Garnry said.
Facebook has begun to step up monetization of its assets including Instagram and Messenger. Instagram recently allowed people to post videos up to a minute in length to attract advertisers. And it has continued to introduce sponsored posts into the feed.
Facebook shares have rallied 9.5 percent year-to-date as the company continues to post strong earnings, with no let-up in this rise forecast.
"I think Facebook is just one of those key stocks you need to have in a long-only portfolio and it's going to outperform the market for the foreseeable future I think over the next decade," Garnry told CNBC.
Disclosure: Peter Ganry runs the SaxoStrats long/short equity portfolio which is long Facebook, long Samsung and short Apple.