Apple Scarfs Up Nearly All the Smartphone Profits

Ninety-two percent of worldwide profits from smartphones go to Apple, according to press reports citing data released Monday by Cannacord Genuity.

Samsung is a distant second with 15 percent of the profits. The numbers add up to more than 100 percent, due to companies in the mix that break even or lose money on their smartphone business.

Apple’s profit numbers are even more astonishing, considering that it commands just 20 percent of the sales in the market.

Since the company started peddling smartphones eight years ago, its profit picture has brightened continuously. When it introduced the iPhone in 2007, two-thirds of global profits belonged to Nokia. By 2012, Apple and Samsung split the profits evenly.

As recently as a year ago, Apple’s profit share was 65 percent, but during the holiday season it rose to 93 percent and has remained above 90 percent since that time, Cannacord Genuity reportedly said.

Shrinking Choices

In the coming years, Apple’s market share will continue to fall, IDC reported in May. By 2019, it will be less than 15 percent, while Android’s share is expected to remain static at 79 percent. For this year, though, IDC expects to see a bump in Apple shipments — an increase of 23 percent, compared to 8.5 percent for Android.

That could be a sign that the discouraging profit outlook in the Android market is taking its toll on phone makers.

“We’re getting to the point where smartphone makers will have to seriously question whether it makes sense to be in this market because they can’t make any money,” said Gartner Research Vice President Van L. Baker.

“That’s going to result in fewer vendors in the marketplace,” he told the E-Commerce Times. “Fewer vendors means less choice for consumers.”

Cannacord Genuity’s numbers reinforce popular notions about Apple’s profitability.

“Nobody has been able to make a buck like Apple,” said Bob Egan, CEO of the Sepharim Group.

A number of factors have contributed to Apple’s profitability.

“They’re experts in managing their supply chain. They’ve also built this ecosystem that others have not been able to build an equivalent to,” Egan told the E-Commerce Times.

“Anyone that wants to take on Apple has to figure out how to build a compelling ecosystem, and so far all there’s been is a lot of swings and misses,” he added.

The Right Stuff

Apple also is putting a compelling product on the market.

“It’s got the right features, the right design, the right services and the right portfolio of applications,” Gartner’s Baker said. “They’ve done a good job of addressing what their market is looking for.”

Further, the company has done a good job of marketing itself, added James Moar, a research analyst with Juniper Research.

“Apple engages in high levels of marketing, to the point where it is now selling the brand almost as much as specific product features,” he said.

That marketing savvy can be turned into higher profits for the company.

“Apple also focuses on very high-value markets,” Moar added. “The company’s largest market is now China, which has an expanding and aspirational middle class. They also have a strong stake in the U.S., which is not currently an entirely price-driven market.”

The Chinese market may be a precarious one for Apple in the future, though.

“China shows signs of wanting to favor local vendors,” Baker said, “so ultimately, Apple’s success in the Chinese market could be offset by efforts by the government to make sure local vendors succeed in the Chinese market.”

Indeed, Chinese vendors such as Xiaomi and Huawei are focusing their products on premium features and an aesthetic similar to Apple’s in the hopes of cashing in on the cachet of premium phones.

“However, without a totally new OS, they cannot offer the same end-to-end ecosystem that Apple does,” maintained Juniper research’s Moar.

“Samsung is trying with Tizen but cannot commit,” he continued, “as a large portion of its buyers want to use Android.”

What that means is that Apple likely will retain its profit stranglehold for some time to come, suggested Moar. “A challenger to Apple’s level of profit will be many years coming.”