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Apple Took All the Money

Apple Took All the Money
by Paul McLellan on 07-20-2015 at 4:00 pm

 Apple has roughly 20% market share of the smartphone unit shipments. Android has pretty much all the rest with a tiny sliver for Microsoft Windows Phone, Blackberry, and Samsung’s Tizen. By any standard, Android is the highest volume operating system ever created. Famously, Microsoft makes more money on patent licenses for Android than it does building its own phones and mobile operating systems. Google gives it away but if manufacturers want the latest and greatest they have to keep Google as the default search. Google is a weird company in many ways, dabbling in a lot of businesses, but it actually really only makes serious money on advertising associated with search. People say it makes money on search, but even that is not really true (it makes a little licensing their search technology for internal use) it makes it on advertising. Which isn’t even a business model they invented themselves.

According to analyst company Cannacord Genuity, Apple made 92% of the operating profit in the smartphone industry in Q1 of this year 2015. In first quarter of 2014 that number was just 65%. Samsung, who are first in market share, took 15% of the industry profits. Once again it seems that Apple and Samsung together are taking more than 100% of the profit from the market and, while there may be exceptions, in aggregate everyone else is losing money. This analysis is, in fact, just for the top 8 smartphone makers but since it is almost a certainty that those even lower down the list are losing money then a full analysis would probably make Apple+Samsung an even bigger share of the overall market.

That covers a big range since there are low-end Android phones all the way up to the Samsung Galaxy 6 which pretty much matches iPhone feature for feature. Because it is an aspirational brand that is only at the high end, Apple doesn’t really compete in a direct sense with the low end suppliers like Xiaomi, Huawei and Lenovo. The high end Samsung Galaxies don’t either, of course, but Samsung has a big spread across the whole range and as it has for almost two years it has again announced that it expects a decline in profits in second quarter. Meanwhile the price of an iPhone on average is nearly four times the price of an Android phone.

I wrote last week about Gartner’s analysis of the Internet of Things (IoT) and how even with high volumes the profitability was likely to be low for the component suppliers and even the system-level hardware suppliers. The money would be made by the service providers and system integrators. It seems that reality is already here in smartphones too. Except for Apple with iOS. Since almost all the other suppliers run Android they cannot really differentiate much except on price. Low end smartphones are almost a commodity with very little brand-name loyalty. Xiaomi have been one of the superstars recently, coming out of nowhere three years ago to be #1 in the world’s largest market China. But even they have seen sales decline and are unlikely to make their target for the whole year.

See also SEMICON Day 1: IoT Everywhere…and China

In a few months, presumably, Apple with announce the iPhone 6S. Or probably at least two models like they did with the iPhone 6. Apparently Apple were surprised by how big the sales of the big screen iPhone 6 plus have been, which adds even more to profitability. Women like it since they keep it in their purse. Men prefer the smaller model since they keep it in their pocket. In Q4 and Q1 if history is a guide, Apple will be huge for Christmas and Chinese New Year. Then their volumes will fall off during the summer. If you are going to buy an iPhone, then August is not a good month to do it since the new models are probably imminent.

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