Skip to comments.Only Three Smartphone Companies Are Profitable
Posted on 11/14/2012 7:33:38 AM PST by SeekAndFind
Interesting tweet from analyst Horace Dediu, "Apple's share of operating profits from global mobile phones dropped to 60% in Q3. Samsung now at 39%. HTC 1%. No other companies profitable."
A couple of thoughts on this:
How is this sustainable for all the other phone makers? What happens to Motorola, RIM, Nokia, LG, et al.? Do they go away?
If they go under what happens to Android? If you're wondering why Google is trying to save Motorola, this could be a clue. It doesn't want to be held hostage by Samsung, the only smartphone maker that's profitable.
What happens to Windows Phone? If Nokia continues to lose money and market share, and HTC is just barely profitable, what happens to Microsoft's mobile efforts?
Is this really a business Microsoft wants to enter?
(Excerpt) Read more at businessinsider.com ...
Look at the business model: they’ve given away phones or sold them below cost for years by bundling the hardware cost into the service plan. Then look at what’s happening with service plans? “Unlimited” is going away fast on one hand, because iOs and Android users consume by far the most data bandwidth, so telcoms have to expand their networks to retain their least profitable customers.
Now with Motorola as it’s hardware arm, Google will look a lot like Apple - an integrated supplier. But both are still dependent on the network providers for bandwidth. Which makes it clear why the ill-fated and technically absurd Lightsquared approach to building out an independent 4G network appealed to so many.
Profits attract competition. Despite much talk about the importance of “apps”, most people use the functions embedded with the phone. Few people who work for a living have the time to deal with the hundreds of thousands of iterations of trivial crapware touted as “ecosystems” that prevent switching to other brands once the contract is up.
It’s called the “Rule of Three” in marketing.
they did it to themselves.
The money is not in the hardware. It is in the recurring service fees, which go to the telecoms.
Apple stumbled onto this with their iTunes store (which the originally thought would be a low volume/low profit sideline to support hardware sales.
This is the reason Amazon sells the kindle hardware at a loss.
Speaking of recurring service fees. What happens when people can no longer afford them? There will be a point when people will need to chose between phones and things like food, gas and mandated healthcare. Regardless of what the media reports, the economy is not improving. The U6 numbers are still too high. Wages are sputtering. There will be a cliff soon when personal discretionary spending will significantly change.
We are seeing this here in Arkansas in a bit of a different way - our Lottery sales have fallen for 4 consecutive months. The lottery folks seem baffled, even despite putting out some “new” games and incentives.
It’s simple - even the die-hard lotto-heads run out of money. And with the growing layoffs, ever-increasing taxes, and looming economic troubles still on the horizon - people just don’t have the $$$ to throw in the toilet on the Lottery.
Wait, I always heard that iPhone was not a smart phone.
“The money is not in the hardware. It is in the recurring service fees, which go to the telecoms.”
They need each other, and Apple is more profitable, on a net-profit % of each dollar of revenue than any of the telecoms.
Apple 23%, Verizon 5%, AT&T 11%
I didn’t do Samsung ‘cause I couldn’t find figures that broke out their Smartphone revenue and net-profit on their own; outside Samsungs totals from all its business lines. You can assume though that inasmuch as Samsung admits its revenue and profit growth have risen and that both have been driven by its smartphone business, its profit margins are more inline with Apple than with the telecoms.
The telecoms are giants on the revenue side. They are also giants compared to the phone-makers on the capital expense and operating cost side. They take in more money & they must spend more of the money they take in, before arriving at net-income (profit). That’s why their margins are lower.
Which would I put my money in; Apple & Samsung, or the Telecoms? Apple & Samsung.