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Apple commands 73%, Samsung captures 26%

It's no secret that Samsung and Apple are dominating the smartphone market. According to IDC's figures for Q1 2012, Samsung had a 29.1 percent share of the worldwide smartphone market while Apple was not far behind with 24.2 percent.
With Samsung and Apple together commanding over 50 percent of the smartphone market, you would expect for them to take home a healthy portion of profits as well. While this is true, according to Asymco, the disparity between the profits reaped by Samsung and Apple compared with the also-rans in this sector is astonishing.

[Source: Asymco]

According to Asymco, the pair accounts for 99 percent of worldwide mobile phone operating profit. Samsung is using its nearly 30 percent share of the smartphone market to obtain 26 percent of the profits.
However, the biggest winner is Apple, which is pulling in an estimated 73 percent of the profits from the mobile market. Apple's performance shouldn't come as a surprise to many considering that the company pulled in $11.6 billion in profits during the first quarter (fiscal Q2).
HTC barely made a blip with just 1 percent of operating profits. LG, Motorola, Nokia, RIM, and Sony have all posted losses with regards to their respective mobile phone divisions, so they don't even factor into this equation.

Samsung Galaxy S III
"Seen this way, the story isn’t so much that Apple 'took the profits from the incumbents'", stated Horace Dediu of Asymco. "Rather, it’s that Apple created a vast new pool of profits. And one need not look far to find out where they came from: operators. These profits were mostly carrier premiums for the iPhone 4S."

Source: Asymco

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RE: carriers
By JasonMick on 5/4/2012 4:31:25 PM , Rating: 4
Tony, if it were not for your hostile tone I think you might not have been downrated, as you raise some valid issues, albeit (in my mind) presenting them in a somewhat unrealistic context). For example:
As soon as the iPhone becomes available on a carrier it becomes that carrier's best selling handset and outsells all the other handsets. If a carrier cannot sell the the iPhone (and if it doesn't accept Apple's financial terms then it won't) it will start to bleed customers who will defect as soon as their contracts are up to a carrier who does have the iPhone.
True, Apple's approach does have some notable advantages:

1. One new SKU per year (there is only ONE current model) --
downside: selection upside: simplicity
2. Apps --
downside: Apple's rigid control upside: the world's largest app market, largest single-phone user base, C-based native development.
3. iOS --
downside: very stale UI upside: ease of use, strong core apps
4. Hardware/Firmware --
Apple's battery life and camera are both superb and industry leading.
5. Marketing --
downside: aggressive promotion can turn off many upside: aggressive promotion can also brainwash some users into a semi-false sense of value, exaggerating the strengths and overlooking the weaknesses.

That said, Apple's phones have some notable downsides:
1. Relatively high cost (e.g. my Lumia 900 was free).
2. Dull exterior, lack of visual differentiation
3. Stale/clunky UI
4. Lack of customization.
5. Having to deal with admiration of raging fanboys
6. Sluggish 3rd party security support from Apple.

The key point about Apple's profits, and the way that the operators and carriers facilitate them, is often overlooked and yet it is the foundation of Apple's financial success. If the carriers could bypass Apple or reduce their payouts to Apple they would, and if Android was a mechanism or lever to achieve that then they would have by now. The carries cannot bypass or press Apple back financially for a very simple reasons. Apple's iPhone is not just popular, it is more popular than all other handsets those carriers sell, combined. It's customer pressure that keeps the iPhone, and Apple's profits, at the top of the pile. Apple's strategy was simple but hard, make the best phone you can, design it so people really, really want it, then use that popularity to make sensational profits.
You're oversimplifying slightly.

Apple's margins are driven up every step of the way:
1. Production: Apple demands cheaper production than rivals.
2. Sales: Apple charges carriers a king's ransom (for the strong sales you mention, largely a product of the company's marketing machine), while dodging taxes in many regions.
3. Upgrades: Apple makes it difficult to replace the battery and does not allow for removable storage, helping force users into upgrades.

Combine all those factors and, yes, Apple is unprecedentedly profitable.

Samsung, however, is appearing to follow a very similar model -- and it's paying off. It made a couple of billion in smartphone profits this quarter, despite its royalty payments to Microsoft.

Obviously Samsung is the biggest threat to Apple's almost unchallenged windfall profits.

RE: carriers
By Solandri on 5/4/2012 5:33:36 PM , Rating: 5
The site keeps rejecting my post with links as spam. Here's an abbreviated version:

He's missing the obvious price subsidy the iPhone is getting over Android phones. U.S. carriers are not passing on the full price of the iPhone to their customers. If a car dealer sells two models of car with wholesale prices of $20k and $30k, but he sells them both to customers for $30k, it's pretty obvious which model will sell more.

Tony is attributing the iPhone's strong sales to it being a superior product. While partly true, the biggest reason it's selling is because of its bigger price subsidy. Basically, Android phone buyers are subsidizing iPhone sales. In EU countries where phones are sold unsubsidized and thus the customer pays the full price, the iPhone only has 5%-9% of smartphone market share. If Tony's premise that people insist on the iPhone because it's popular were correct, you'd expect it's market share in those countries to be around 25% like the global average.

The iPhone isn't subsidized because it's popular. It's popular because it's subsidized. At the end of the quarter, it's profits which matter for a company. Apple knows this, which is why it's been content with a 5% market share in PCs. The 5% they hold is very profitable, and they don't feel they can increase it significantly without negatively impacting profits. The carriers haven't figured this out yet, and are chasing the holy grail of market share at the cost of profits.

(This isn't to say the iPhone is a bad product. It's a very good product, best-in-class by many metrics. It's just pretty obvious, to me at least, that its sales figures are being inflated by carriers being afraid to charge full market price for it. This is another reason the subsidized phone business model sucks - it distorts the market based on the whims of a few marketing execs at these companies arbitrarily setting prices. The primary vehicle of market forces - price - disappears into a huge subsidy slush fund, hiding the fact that I'm helping pay for Joe iPhone user's phone.)

RE: carriers
By Tony Swash on 5/6/12, Rating: -1
RE: carriers
By TakinYourPoints on 5/4/12, Rating: -1
RE: carriers
By Tony Swash on 5/6/2012 7:42:50 PM , Rating: 3
I may reply in more detail to your points tomorrow - it's really late here and I must sleep - but I had to reply to this:

Tony, if it were not for your hostile tone I think you might not have been downrated

Let's get real, I will get downrated if I post anything that challenges the views of the vocal minority of Apple haters and iPhobes. The first sentence in my response was sarcastic but the post I was replying to was a) drivel and b) kicks off with a common iPhobe defence meme which is the use of the phrase 'sheep' to describe millions of people whose choice of consumer durables happens to be different to the writers. I don't insult people who buy Android phones, to do so would be ludicrous, insulting and immature.

RE: carriers
By elleehswon on 5/7/2012 8:37:02 AM , Rating: 2
Apple's battery life is no longer industry leading. Sorry to be the bearer of bad news. The HTC one x owns that title. Also, the iphone 4s's battery life has been eclipsed by a quad core phone with a 4.? inch display. Good on HTC. Too bad they only have had 4 decent phones (Incredible, Rezound, One X, one S.).

Also, apple doesn't really demand cheaper production, they just put what they like to call "tried and trued" hardware in their phone. by "tried and trued", i mean 1+ year old hardware in their phones where everyone else is going cutting edge on their premier phones.

"Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people." -- Rep. Christopher H. Smith (R-N.J.)

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