Despite approximately 1,000 companies making smartphones worldwide seemingly just one reaps all the profits.
According to Canadian investment bank Canaccord Genuity, Apple Inc. received 92 percent of the total operating income from the world’s eight top smartphone makers in the first quarter, a stunning 50% increase year over year. Rival Samsung accounting for 15%, resulting in a total greater than 100 percent because many players in the space are actually losing money to compete on the hot selling devices.
While Apple last week asked suppliers to produce a record number of new iPhone models, Samsung forecast below expectation profits,while HTC, Microsoft and Nokia all reported losses.
What makes Apple’s share of profits especially remarkable is that it sells less than 20% of smartphones by unit sales. The vastly differing profit profile comes as it commands higher prices for its phones thanks to its strong brand and advanced ecosystem.
Rivals using Google Inc.’s Android operating system seem unable to differentiate their products from one another and are thus not able to command any sort of price premium.
The results demonstrate how fast moving the business has become as just in 2007 Finland’s Nokia owned two-thirds of smartphone-industry profits, according to Cannacord. During that time the market has also seen the rise and spectacular fall of Blackberry, which also once commanded significant market share before quickly falling off.
Yet strategies in the market mean the sales numbers are misleading. Microsoft and red-hot Chinese maker Xiaomi monetize their customers after the initial sale via paid app downloads and phone accessories.
Samsung makes a considerable amount of the components in many of the different phones, including Apple, meaning it takes a cut of the component sales across the industry.
These differences are notable, as too is that fact Canaccord’s data excludes privately held companies like Xiaomi and India’s Micromax Informatics Ltd, who increasingly command significant market share, especially in developing countries.
Its also important to remember that the smartphone market is still fast growing. As growth slows analysts think it will start to resemble the personal-computer business of the late 90s, where average PC prices plunged and nearly all manufacturers struggled to earn profits.
But the smartphone industry isn’t the same due to app-store differences and ecosystem lock-in. Own one Apple product and chances are you own a few, making switching far more difficult than in the PC era.
Despite a slew of attempts by well-funded rivals like Google, Samsung, Microsoft and others none have been able to replicate the tight, highly profitable ecosystem that Apple has carefully developed since the launch of its first iPhone in 2007.
For the moment, at least, Apple’s industry dominance looks set to continue unabated while the misfortunes of a host of rivals seem also set to continue.
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