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Phone incumbents' average operating margin: 4.5%. RIM and Apple: 34%

After ASPSales, and Unit Volumes we look at the three year history of operating margins for the seven most significant mobile phone vendors (Nokia, Samsung, LG, Motorola, Sony Ericsson, RIM and Apple).

The following chart shows the OM from mobile phone sales. These figures are as reported by the companies with the exception of Samsung and Apple. Samsung reports OM for its telecommunications unit as a whole and we have to assume that it’s largely accurate for mobile phones. Apple does not report margins for its iPhone but it’s possible to estimate gross margin percent for the iPhone and then subtract its overall OPEX as percent of sales. This assumes that OPEX is allocated to the iPhone in proportion to sales, which is the best assumption we can make at this time.

The data shows that the iPhone has been considerably more profitable, due mostly to a high ASP, than other vendors. Motorola and Sony Ericsson have been “underwater” with respect to margin for much of the time period, with LG recently dipping into the red.

Nokia’s margin erosion is a source of significant angst but note that it has just reached Samsung’s historic level (around 10%). LG, long seen as an up-and-coming vendor who took over the number three spot from Motorola is shown to have done so with moderate-to-low profit margins.

Overall, the phone incumbents have an unweighted average operating margin of 4.5%, down from 8.6% three years ago. In contrast, RIM and Apple have an average OM of 34%, up from 24%.  In other words, profitability has halved for the volume leaders while it has increased nearly by half for the entrants.

This goes a long way toward explaining the “smartphone gap” which is being filled by Android. As vendors see their unit growth, ASP and operating margins under pressure from low end disruptors, there is a tendency to flee to the high end that smartphones represent. Android offers an irresistible siren’s song.

  • Alan Rutan

    This is a really interesting and enlightening chart. Thanks for the much-needed perspective.

    One comment: I didn't understand your point regarding Apple and RIM in the penultimate paragraph. As I read the chart, Apple has a much higher average OM than RIM—roughly 40% vs. RIM's 25%.

    • http://www.asymco.com asymco

      I compared the average of Nokia & SE & LG & Mot & Samsung vs the average of RIM & Apple. The idea is to divide the industry into incumbents and entrants and compare along several metrics.

      • Alan Rutan

        OK, I see where you were headed. I guess I think of RIM as more of an incumbent, having introduced its first mobile phone in 2002, but they are certainly more recent entrants than the others.

        Alan (Hannibal on AFB)

  • anonymous

    If correct, these iPhone operating margins are 2x the overall operating margins of Apple's other business. I guess that implies that 60% – 70% of Appl's current net income is coming from the iPhone?

  • Iphoned

    A quick check of rim's financials….op margins were 21% in the most recent fiscal year, and 28% two years befor that. So I don't know where the 34% number for rim comes from.

  • Asymco

    34% is the average of RIM and Apple. I'm comparing the averages of two groups of companies. The graph shows the RIM figures separate from Apple.

  • Iphoned

    I see. Thank you.

    I wonder how android phone makers are doing on op margins with the benefit of free Os…0

    • http://www.asymco.com asymco

      Sony Ericsson and Motorola switched to a portfolio that includes a few Android products and their GM and OM have increased (see graph). That may have something to do with the Android license fee vs. Microsoft's Windows Mobile fee structure, but I expect it's mostly to do with the ability to be competitive at the high end again. Chances are that this won't last as HTC et. al. win more operator deals.

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  • OB

    Very interesting analysis. How did you estimate iPhone gross margins? Also, do you have a data table for this?

    • http://www.asymco.com asymco

      iPhone gross margins along with the other Apple product line GM's are estimated. I use a method for backing into the figure based on historic understanding of the GMs for all the other products. In other words, if you Mac, iPhone, software and iTunes margins you can get iPhone GM. I will make my data and charts available as an app soon. Stay tuned.

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