Apple, Samsung claim 99 percent of smartphone profits

The smartphone industry is exploding, with more and more people buying these powerful devices every day. But is everyone in the industry benefiting from this smartphone boom? Not really, according to a new report from the research firm Asymco.

According to their findings, two companies had swallowed up nearly all of the operating profits for the smartphone industry. Apple is the leader with its iPhone division taking 73 percent of the industry's profits while Samsung is a distant, but still solid, second with 26 percent. That means Apple and Samsung have between them grabbed a whopping 99 percent of all operating profits in the smartphone industry.

HTC came in third place with just one percent of the industry's profits. Other companies such as Motorola and RIM have all reported losses while LG has managed to break even.

So what happened? Asymco says that most of the praise, or blame in some cases, is on Apple. The report says:

Seen this way, the story isn’t so much that Apple “took the profits from the incumbents”. 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.

Wireless carriers are willing to pay a premium price to Apple because, according to the report, the iPhone 4S gives them " ... a competitive advantage or preserves their customer base from churning." It doesn't look like Apple will be giving up its huge profits anytime soon.

Image via Asymco

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13 Comments

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Then, the real brilliance of Apple is finding a way to transfer billions in profits from the carriers to themselves?

Devious, but insightful.

The "problem" with apple is people just want an iPhone, doesn't matter what everyone else can offer but people just WANT one... because.

I dunno what they have done to people but it works, which is nice. I just don't like the way the market it saturated with one device. With PC's its not too bad because the OSX and windows systems have a diverse mix, it's not all the same thing. But it seems that everyone just WANTS this iPhone... I could understand it with the 3G and 3GS but now its getting crazy.

Auzeras said,
The "problem" with apple is people just want an iPhone, doesn't matter what everyone else can offer but people just WANT one... because.

I dunno what they have done to people but it works, which is nice. I just don't like the way the market it saturated with one device. With PC's its not too bad because the OSX and windows systems have a diverse mix, it's not all the same thing. But it seems that everyone just WANTS this iPhone... I could understand it with the 3G and 3GS but now its getting crazy.

http://www.youtube.com/watch?v=FL7yD-0pqZg

This!

What I dont like about these metrics is that the comparison is not completely fair.. This is because apple sells phone, makes money on software sales, app sales commision and online services.. and they are comparing them to a bunch of companies that only sell phones.. they should really include google and microsoft in this then.. because google makes money on the android software..

Also a company like RIM has only had losses lately because they are writing off future losses.. if you dont include these future losses that they are still making a profit.

Lachlan said,
What I dont like about these metrics is that the comparison is not completely fair..

The graph is comparing profit made from mobile phones only.

Manish said,

The graph is comparing profit made from mobile phones only.

Whilst Lachlan is incorrect about online service payments etc. he/she does have a point with regards to software/OS.

All smart phones comes with an OS:

When a store buys an iPhone or a customer buys one directly from Apple... Apple keeps all the money.

When you buy any other phone on the market, the manufacturer has paid another company (Google or Microsoft) for the OS. (Also the store actually makes some money!)

Therefore This graph is useless... As its probably impossible to split Apple into subdivisions. it should probably include all OS producers.

Take the Lumia for example... is this just a Nokia or perhaps really a Nokia/Microsoft product?

lt8480 said,

Therefore This graph is useless... As its probably impossible to split Apple into subdivisions. it should probably include all OS producers.

Take the Lumia for example... is this just a Nokia or perhaps really a Nokia/Microsoft product?


Does the profit made by Nokia, for example, not already take into account how much they pay Microsoft for using WP?

The graph is hardly useless. For one, it clearly demonstrates that Apple has a more profitable business strategy than the other smartphone manufacturers (at least currently anyway).

Manish said,

Does the profit made by Nokia, for example, not already take into account how much they pay Microsoft for using WP?

The graph is hardly useless. For one, it clearly demonstrates that Apple has a more profitable business strategy than the other smartphone manufacturers (at least currently anyway).

The graph presumably takes the money Nokia has left over after it has paid Microsoft - as that is Nokia's profit.

These numbers are obviously all made up, but as an explanation here's an example:

Say Nokia make the 'hardware' for £300 (including all their admin costs), buy WP7 'software' for £50 and sell the phone for £360, they have made £10 profit. But £50 has gone to Microsoft. Lets say it has cost Microsoft £40 per device to make the OS, then they have also made £10.

Say Apple make the 'hardware' and 'software' for £340 (including all their admin costs), and sell the phone for £360, they have made £20 profit.

In the above examples if 1 device is sold of each then the results are Apple £20, Nokia £10, Microsoft £10. If we compare just Apple and Nokia then it looks as if they are making twice as much money - which they are. However this graph claims to show smartphone profit in the whole industry, and claims Apple and Samsung get 99% of all profit which is clearly not the case. So I would argue the graph does compare something, but is useless as showing what it is claiming to, and is the wrong graph to choose.

All the data can compare is comparative profits of selected companies, as a certain sale point. This sort of graph would be better shown as bar charts than as % of the "whole industry" - which is definitely isn't, so I'd argue the graph is useless and done by someone who understands nothing about either the industry and has failed at basic statistics by choosing the wrong graph, and claiming it shows something it cannot show with such limited research or scope.

The graph should be a bar chart, or if it wishes to show the industry it should probably split it down all the way to chip makers, and gold suppliers etc.

Just to pose another question - how much does Apple buy from Samsung for example? Presumably this graph fails to consider this too.

lt8480 said,

blah blah blah

It was a rhetorical question and I didn't need the explanation. You don't seem to understand that profit basically equals sales minus costs (or expenses). If you did, you wouldn't need to pose questions such as "is this just a Nokia or perhaps really a Nokia/Microsoft product?" and "how much does Apple buy from Samsung for example?". These factors should have already been taken into account when reporting profits.

Also note that the title of the graph states "mobile phone vendors". The amount that Microsoft make from Nokia is irrelevant apart from when this expense is calculated into Nokia's profit, and the same goes for the amount that the chip makers or gold suppliers make. That is not what this graph is attempting to show.

Finally, the graph in the article and the one you linked to (which I agree is more informative) quite clearly show that the overwhelming majority of profit share at the end of Q4 2011 belongs to Apple and Samsung combined. The article doesn't specifically state 99%, but it does say "Of the vendors tracked... Apple obtained 73% of operating profits, Samsung 26%". 73+26 = 99. No magic, just simple maths.

The above graph has its purpose (whether it may look better as a pie chart or in another form is just being picky), therefore not useless.