Making it up in volume: How profit and volumes traded-off in the fourth quarter

Today’s charts show the amount of profit captured by the top eight public mobile phone companies in two different ways.

The first, as a bar chart:

The second shows the way they captured it by taking into consideration the number of devices sold.

Please click on the image for a full size view (1024 pixels wide).

Generally speaking, vendors which are focused on smartphones have higher pricing and higher profitability (pricing discussion will follow at a later time). However, some, like Motorola and Sony Ericsson are still trying to recover from the collapse of their non-smartphone business and have higher prices but not very high margins overall. LG does not seem far behind.

Samsung and Nokia profit per device is quite small but they “make it up in volume”.

The areas above represent operating profits and are comparable. One wonders how the ratios between horizontal and vertical dimensions for these boxes will change over time.

Since the overall market will expand, the sum of all horizontal dimensions will increase. As the first chart shows, there is no law for the conservation of profits in the industry, so it’s possible that the sum of all these areas will increase, but it’s still hard to imagine it increasing by an order of magnitude.

Will the industry remain clustered into a tall-and-narrow group and a short-but-wide group? That’s a question with many strategic implications..

  • ConciseFan

    One wonders if tall bars can add enough value to achieve the short bar volumes. Of course value could be completely subjective (as in have to have it).

  • Steven Noyes

    HTC is another interesting company to watch. Of all the Android/WinMo/WP7 handset makers, they really seem to have a focused act and know what they are doing.

  • Alan

    Would be great if the axes had the same unit spacing – square pixels if you will – so the area would represent total profits .

    • ______

      The area does represent total profits. What am I missing?

      • alan

        It's not to scale – 1M unit of sales is wider than 1 dollar of profit is tall. So if I had a profit of $10 each on 1M sales the area would be different than $1 profit on 10M sales. It would make the graph somewhat unwieldy in size which is probably why it's done the way it is.

      • alan

        My apologies – the areas do correctly show the amounts. I was just confused by the scaling differences.

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  • Joe_Winfield_IL

    Horace, any guess at where ZTE would fit into this picture? I'm curious what shape they have as a low price Android manufacturer – this is a unique model vs. any of the top 8.

    • asymco

      ZTE sold about the same number of phones as Apple (about 16 million). I believe the vast majority were not smartphones. I don't know if ZTE is profitable, but I doubt they are in the category of the taller vendors.

  • Rob Scott

    The profit bar should be shorter with time: Apple entering new price point reducing avg $ profit per units (while maintaining or/and increasing profit% per unit), and increased competition on the Android side. The low but fat bars for Android OEM are probably the best and things should go down hill from here , more units but zero to negative profits per unit.

    • Mculbert

      You have quite an imagination. Let us know how that works out!

  • arvleo

    The heartening thing about the operating profit charts is that Apple has not squeezed the industry for profits but grown the overall profits for the industry i.e. grown the whole industry pie. Of course the reason being phenomenal growth of highly profitable smart phones.

  • Kizedek

    Just a minor edit in the first sentence would make it perfect English; I'm not intending to be picky, just constructive as I love reading your blog. I really appreciate how you took the time to not only reply to a comment of mine, but to email me as well.

    A "not only" needs a "but" somewhere. Your first sentence could read, "Today’s charts shows not only the amount of profit captured by the top eight public mobile phone companies but shows it in two different ways."

  • ConciseFan

    Any data on  profits being harvested by Google on Android based phones?  Apparently this includes license fees for gmail and maps applications as well as advertising, any other mechanisms?

    • JonathanU

      Last data point I think we had was that Google was expecting a run rate revenue figure of $1bn from mobile advertising. No inkling as to what sort of margins they make on this though. Also no idea whether this $1bn in revenue came from Android or from across all platforms. However, I would imagine it's from across all platforms.

  • KenC

    Couple thoughts:
    • What is LG's problem? Is it really because they were late to the smartphone party? I mean they've been profitless going back 5 quarters now. My general feeling is that companies make most of their profit in their home countries, so is there something going on in South Korea where Samsung is totally dominating them now?

    • Just looking at these two charts, things don't look so desperate for Nokia. Operating profit went south 2 years ago, but seems to have stabilized since then. It's just not growing when the tide has been rising.

    • Everybody's operating profit went about 2 years ago. Some kind of recession you may have heard about.

      I'm not sure if Nokia's figures include Nokia Siemens Networks which lost Nokia a load.

      Certainly though, Nokia haven't recovered well from the recession. I wonder how much of that is because of geography as it seems the only companies recovering well have significant US market share.

      There's also a recent suggestion that the previous CEO lowered ASP in order to maintain market share in 2009/2010 until Symbian^3 arrived. S^3 was late of course and they dumped Maemo for MeeGo which has also cost them time.

      • asymco

        Nokia's figures are those from Devices and Services only. The chart title says it all: Operating profit from Mobile Phones. Nokia bundles services with devices because services are enhancements designed to increase the value of phones.

    • asymco

      LG's "problem", by their own admission, is that they did not think smartphones would accelerate as quickly as they did. It took a willful act to ignore the segment as Samsung was investing in it for many years, so all LG had to do is copy Samsung's every move. They chose not to do that.

  • One minor issue with these data: These include so-called "feature phones". Apple doesn't make feature phones

    • Nick

      The whole point is that it shows Apple is so much more profitable *because* it doesn't make feature phones.

    • asymco

      These data include all phones, even those without features.

  • John C Beatty

    Only the second graph is a link to a 1024 pixel wide version – could you possibly make the first link to an enlarged version, too? thks -jcb

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  • Android vs. iPhone
    Include advertising profit generated from the same timeframe, and digital content sales profit with this data.

    • asymco

      This data lists the performance of mobile phone vendors. I don't believe any have advertising revenues from phone sales. Only Nokia and Apple have content sales. Nokia's income/profits from Services is already included but Apple's is not since iTunes is not serving only their iPhone users. I don't want to attribute iPod, iPad or Mac iTunes consumption to the iPhone business. But even that question is moot since Apple has indicated that iTunes runs at break-even so the profits are likely to be zero or immaterial.

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