Making it up in volume? How to view unit profitability vs. volume in handsets

The following chart shows the third quarter’s profitability of eight top phone vendors as a measure of phones sold multiplied by profit per phone.

I’ve added the pie-chart showing the rectangular areas as a percent of available profit in the peer group. Note that LG losses are excluded from the pie chart but included in the area chart.

The total area represents total profit. This representation shows how the largest vendors make relatively little profit per phone but the large unit profit for Apple and RIM gives them a significant share of total industry profits.

  • This is fantastic display of information.

    How come apple profit per unit is so high,
    compare to RIM and HTC? I thought they're
    selling smartphones and nothing but.

    • asymco

      They are. Those numbers are for their phone business. The iPhone average selling price is quite high. Must have something to do with what the market will bear…

      I will provide an ASP analysis shortly.

    • Simple. Apple Charge $100-$200 more for their handset than anyone else at the same BOM if the iSuppli guys are to be believed. Also Apple spend less on R&D than most of the competitors too.

      IIRC Nokia spends more on R&D in a month than Apple spends in a year.

      • Stefan

        Don't leave out focus in R&D: For example, how much does Nokia spend each year to develop 100 different handset models?
        And please provide some data on R&D spending for your claims.

      • I was mistaken but it's not far off the truth.

        Apple's R&D spend for 2009 was $1.109 billion. Nokia's R&D spend for 2009 was $7.877 billion.

        So Nokia was only spending 2/3rds Apple's annual R&D budget each month. I would guess that's come down in 2010 as they seem to have been concentrating on a more platform approach and in 2011 I'd guess it'll come down more, especially with laying off 1800 and simplifying the software strategy.

        It's been the case for years that Apple runs R&D very lean. It's why OSX on the Mac suffers because the same programmers are pulled off the Mac to work on iOS. As a user of their products and a programmer, I think that sucks generally but I can see how the stock market likes it.

      • asymco

        The standard measure of R&D (& SG&A) is as a percent of sales. The ratio for Apple is around 3% (see:….

        Mobile phone industry standard is around 5% to 7%. Nokia used to spend around 10%. They are very conscious of this and want to bring it down to at least industry average.

        Contrast that to HP as a proxy for the PC industry. 0.7%:

  • Could it also have to do with component costs? Apple consolidates arounds very few models, standard parts across platforms that has to drive components costs down.

  • Kristian

    That is cool chart again. Way much better what I asked for.

  • And so many different colors! Cool stuff. Thanks!

  • Duncan

    Combine that chart with the pie chart showing percentage of overall profit – you can place it in the white space over all the horizontal bars. (Otherwise one has to estimate the volume of the different rectangles.)

    Also, any chance for future reporting that you can assign colors permanently to the various companies (and OS's) among the top players? I know it will be a subjective struggle to see who gets red versus blue versus pink, etc. (See: Reservoir Dogs) but regular readers will have a visual shortcut when flipping from one chart to the next. (You'd still need to include text labels, of course, for the color blind and newcomers.)

  • JML

    Great info, with simple expressive presentation. I discover you today Horace and will add your site to "roughly drafted" as my best sources. Would be interesting to see some hiden data on this chart :
    – Apple numbers and profits in other iOS devices (iPod Touch and iPad) —> would show even bigger clout
    – Google numbers in mobile advertising —> would show a more realist view of Android profitabilty

  • Amazon doesn't report numbers of kindles (lots and lots!), and Moto doesn't report Droid numbers, and there are so many android handsets (lots and lots), that it might be impossible to break out the numbers for others beyond where Horace has already gone. But then again,….

    • Marcos El Malo

      I'm sure Kindle units sold is increasing, but if the number was truly significant I think Amazon would be tooting their own horn quantitatively. When that Amazon starts giving out number of units sold, I'll start paying a lot more attention.

      Still, Amazon is in a very good position. When someone buys a non-kindle tablet and downloads a compatible reader, Amazon wins anyway. They're not reliant on selling their razor handle to sell razor blades.

      • asymco

        The really painful thing about trying to figure out Kindle sales is that they are sold through You can't sample the channel, get NPD data, watch how many people are walking out the store with the thing, etc. Amazon not only keeps the sales figure a secret but they also know that it can't be estimated by anybody. Why they do this, I have no idea.

  • sumtotal100

    This data shows the same analysis as your previous pie charts showing the profit share and market share.

    • asymco

      Almost. First it shows two data sets on one chart (market share and profit), second it shows the profit per phone, which was not shown before, third, it shows negative profits from LG which are not part of the profit share pie charts.

      Mostly, however it gives the data from a different perspective which might be more useful for some purpose.

  • asymco

    When you see a BOGO program, you never know who's eating the cost. It could be the operator, it could be device vendor, it could even be the platform vendor. When you hear that Microsoft will spend a billion dollars to promote Windows Phone, that usually means marketing co-spend which could go into these sort of promotions.

  • TanToday

    Then there is the Apple iPhone version of NOBOGO.

    You hire out of work overseas Chinese to stand in line for hours in London, NYC, and SF. They pay FULL PRICE, you then do a quick two partner trip { with markups } to get them to Hong Kong where they are again shipped back to where they were marketed for a localized retail sale about 25% over the FULL PRICE asked at the Apple stores around the world.

    One group is offering to GIVE a free one, for one sold, whilst Apple is actually selling ABOVE FULL RETAIL in many countries, often WAY above full retail.

    Showing, I guess, that there is actually room for Apple to charge the vendors EVEN MORE for each phone than they are asking today.

    Strange in such a supposedly "cutthroat business" as the mobile phone global markets.

    • asymco

      Many companies offer incentives to buy their products, Apple gives disincentives: limits on how many products you can buy, limits on how you can pay, limits where you can buy.

    • KenC

      Scarcity creates value. Apple needs to increase POS, points of sale, in China to eliminate this profit opportunity.

  • Topiwala

    Thanks. Very revealing. What is the source of this data? How do you know Apple make some $230 per phone or that Motorola makes $21.

    • And isn't the $21/phone very high? MOTO reported last week $3M on 3.8M phones, or 79 cents/phone.

      • And isn't the $21/phone very high? MOTO reported last week $3M on 3.8M phones

        "Sales from its handset business climbed 20 percent to $2 billion last quarter, helping to narrow its loss to $43 million from $216 million a year earlier. The division had an operating profit, excluding some charges, of $3 million. Motorola said it shipped 3.8 million smartphones last quarter, beating Thornton’s estimate of 3.6 million units."

      • asymco

        All my data comes from company reports. There is an error with the Motorola number. I recorded the operating margin from their Home division instead of their phone division. Profit per phone should be $0.33 rather than $19.

        For Apple, profitability is estimated based on ASP, gross margins and operating expenses.

        Decreasing Motorola's profit increases Apple's share of profit to 51%.

  • r00fus

    Notice how the top two profitable phones aren't using a commodity OS like Android, WinMo or Symbian?

  • Problem with a high volume business is that price changes drastically affect profitability.

  • Jawad

    Why is LG making net "loss" even though it's shipping almost combined volumes of Apple & RIM!!
    What are they not doing right compared to Samsung.
    Any thoughts? I'm surprised.

    • asymco
    • Alexkhan2000

      LG was late to the smartphone market, for one, and that means loss of mindshare when rivals such as Samsung, HTC, and Motorola race ahead with a slew of models before LG can respond. The inexplicable slow responsiveness of LG cost LG Electrnonics' CEO his job a few months ago, shortly after Nokia canned their CEO. Most of LG's volume represented here is the "commodity" low-margin feature phone variety. Samsung is pounding on LG without mercy right now and LG needs to figure out how they're going to dig out of the hole they're in. LG now seems more interested in pushing the WP7 phones although they've got their Optimus line of Android phones hitting the market as well.

      • asymco

        LG signed a huge (estimated in the hundreds of millions) deal with Microsoft to push Windows Mobile in 2008. That "partnership" may have cost them one or more years in the market.,2817,2333787,00.a

        (Microsoft also bought their way into Verizon for Bing placement which resulted in their perverse Android+Bing product line)

        This gives you an idea of how cold hard cash can affect the platform game.

      • Alexkhan2000

        Thanks for that tidbit, Horace. That definitely explains LG's late entrance and why they seemed to be dragging their feet with Android. Obviously, they made the wrong bet and it has proven to be quite costly to LG. That combined with Samsung beating up on LG on all fronts (chips, displays, TV's, home appliances, etc.) has added to LG's woes. In Korea (and I suspect the rest of the world), LG has sort of become the stepchild secondary brand to Samsung.

        Yes, we are seeing that Microsoft is going to play hardball in their efforts to catch up with the iOS and Android. Microsoft doesn't have a choice. They have fallen too far behind. I get a distinct sense that Microsoft is more focused on Android than iOS at the moment. I'm sure that's mainly due to the fact that they have to convince the Android handset vendors to adopt and produce the WP7 phones. And it's why Microsoft sued Motorola when Motorola said that they're sticking with Android.

        Although I can't envision Apple and Microsoft becoming chummy "allies" per se, I do see them at least not trying to get in each other's way as they battle a major common enemy. This three-way war between these giants is a fascinating thing to observe from a strategic perspective. There needs to be finesse and delicate handling of complex interwoven relationships as well as brute force and speed.

        Apple seemingly has the position on higher ground with stronger combined forces but the field will continue to be very fluid with two formidable opponents with strengths (or "weapons") that Apple doesn't possess. It's in Apple's best interest to maneuver in ways that produces an outcome of Microsoft and Google inflicting the maximum amount of damage on each other while keeping both out of Apple's turf. Obviously, that's easier said than done. If Apple takes its eye off the ball, either can outflank Apple's position in a heartbeat.

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  • @Jawad: Mismanagement on LG's part: A couple of errors in your forecast or supply chain can easily move you into the red.

  • KenC

    Great work as usual. A couple things. Having the pie slices match the color of the bars would be nice. The x-axis line should be at $0, so that LG's purple rectangle should be under it, making it obvious that it represents a loss. It took me a few seconds to realize why the x-axis line wasn't touching the columns.

  • from this table i concluded that how apple is befooling its customer by selling iphone 90% costllier than its actual n8 cost $555 while iphone4 cost $ contrast nokia n8 has more feature than iphone4.they are targeting only the elite customers thats why they have so much profit.

    • asymco

      You see what you want to see. Some see profit, others see value.

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