iPhone share of phone market in Q1: 5% volumes, 20% revenues, 55% profit

Operating profits for the eight vendors I track increased at a compounded 25% over three years. As with revenues, the growth is concentrated. The following chart shows operating profit growth across three time frames: three year compounded, year/year and sequential. Loss-making vendors are excluded from this chart.

Looking at individual performance, the following chart shows how each vendor performed over time:

The mobile industry has historically been unforgiving. Companies that fall into unprofitability tend to stay there or exit/merge. This has claimed many: Ericsson, Siemens, Alcatel, BenQ, Palm, Sony, Toshiba, Handspring, NEC, Hitachi, Casio.

LG, MMI and Sony Ericsson are all in the same precarious situation. We’ll have to watch carefully whether a recovery is possible for any of them and whether Nokia will reach the same rocky position.

Looking at operating profit shares, the picture is plain to see. While RIM, Samsung and HTC have maintained profit share, between 2007 and now, profit share has mostly shifted from Nokia to Apple.

But this does not tell the whole story. Here are the absolute amounts of operating profit from mobile phones. Exactly three years ago Nokia was earning 47% profit share or $2.35 billion. This past quarter Apple’s 57% was equivalent to $5.23 billion, more than twice as much.

Finally, the league table shows how Nokia has now dropped from second to fourth in the last quarter. Not only Samsung, but RIM has overtaken Nokia as well.

It’s become routine to see Apple at the top of the list of profit earners from mobile phones.

  • memes

    It is phone market or smartphone market? 55% of entire phone market is unbelievably cool.

    • asymco

      Phone market.

      • memes

        so iOS profit share in phone market is way more than all Android OEMs combined. wonder why people dont talk about it when comparing iOS n Android.

      • KenC

        Part of the problem is that your typical analyst has not been able to calculate phone profit shares as Horace has done.

      • Some argue that profit share genuinely doesn't matter.

        Companies enter the market, companies die. You could argue as long as 70% of phones at any given time are running Android's platform, it doesn't matter.

        That would depend on believing that the only thing important is being in front of the most users and eyeballs. Apple doesn't need that, but Google must attain that. That's Google's only condition for victory, as they are defined by the traffic they draw, and it's the one condition they must meet.

        You could argue that Apple, needing not a vast audience to drive a sustainable business, is perhaps more flexible in this regard; that is Apple can survive on a smaller market share quite well in a given market.

        Or perhaps Apple has its own conditions that it is behold to for survival. Apple and Google are playing in the same market, but they're playing to different ends. If I want to harvest a resource for one reason, and you want to harness it for a different reason, can we both win? Or is there some overlapping conflict that will ultimately prevent co-existence?

      • Drew

        I see Apple and Google in two different markets: mobile devices vs mobile advertising. That's why Google has zero profit in the mobile device market and could care less. But their hardware partners care very much if they can't make enough profit.

        Also, Google makes money from ads on ALL mobile platforms. I'm fairly certain AdMob is still strong on iOS devices. So they're not really all that dependent on Android dominating the market. A case could be made for them to sell off Android and focus on ads and apps on all platforms.

      • Sander van der Wal

        Market dominance in a given tech sector was the way to make most ofl the profits in that tech sector. MS/Intel dominated in the PC market and made most of the profits.

        Cannot see Google making profits with Android as it is free. Android device makers compete and most make little money, as did the PC makers. The availabe money has to be made by somebody. Used to be Nokia, now it is Apple.

      • The technicality is that Google doesn't make money from the *selling* of Android. Google makes money from the *use* of Android, as a portal to Google-advertising supported mediums.

        This strategy is also usable on the iPhone platform, except it allows Google to spread their chances among a variety of manufacturers and potentially the entire smartphone market, rather than hoping that everybody buys iPhones.

    • famousringo

      Last I saw, smartphones were pretty much the only devices making money in the phone market. Nokia was making some profit off of dumbphones, but that profit was offset by the losses of LG and others. The dumbphone market as a whole was running around break-even.

      So 55% of smartphone market profits or overall cell phone market profits? Same difference.

  • Omar

    It’s become quite clear that mediocrity and complacency will put you in Nokia’s position. Having a compelling platform is proving to be most difficult to the incumbents. My question is, how did Nokia survive for this long with such an inferior product?

    • Sander van der Wal

      When they had Palm and Microsoft as smartphone competitors, they did very well indeed. Early adopters did not find the Nokia offering inferior, far from it.

      But it is too hard to use for the early majority, iOS is much better in that aspect, even though iOS is more limiting for third party development.

  • Ah. Great stuff. I think your incumbents/entrants lens is simple but brilliant. Bravo.

  • Agree on distribution. They have great operator relationships. They're also cranking out great full-featured Android phones better than anyone else.

    Not so sure that they are so great at supply chain, but would be interested to see supporting arguments on that.

    • My guess on the supply chain is based on:

      1) They seem to meet delivery dates very well.

      2) They don't seem to have a huge shortage of product.

      3) They don't seem to have huge amounts of inventory.

      4) Their profit shares are very consistent.

      To get all of these four pretty close to right, I think you have to have a pretty good handle on your supply chain. I may be wrong on that.

      • addicted

        I agree. Additionally, lets not forget their nimbleness. Just a little more than 2 years ago, they had maintained the same profit share as they do now by selling WM6 phones.

        They have basically been the premier partner for both the 3rd party smartphone OS'es that have existed in this century (Palm does not count, because they spun the software unit away out of desperation).

      • Hmmm. I posted a reply here thanking you for the above, Seems to have gone missing.

        I think I buy the idea that HTC could have a superior supply chain as they have dealt with the operators for a v. long time. They couldn't do that if they had supply chain snafus.

  • westechm

    The operating margin growth rate, y/y, is shown as >200% in the first graph but appears to be flat in the second. What am I missing?

  • westechm

    Oops! That should have read:

    The operating margin growth rate FOR HTC, y/y, is shown as >200% in the first graph but appears to be flat in the second graph. What am I missing?

    • KenC

      The second chart shows the OpMargin%age. The first shows the OpIncome growth. It's mislabeled.

      • westechm

        Thank you.

    • asymco

      The first chart shows margin (i.e. dollars), second is percent margin.

      • westechm

        Look again. I think KenC has it right.

      • asymco

        Sorry, KenC has it right.

  • westechm

    So, if the first chart is income growth and the second is margin, HTC tripled the amount of sales over the last year and maintained margin even though their product mix presumably moved toward the higher end phones. At least they stopped the margin erosion of previous years.

    I wonder who the survivors will be looking ahead two or three years.

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  • davel

    The second chart Operating Margins is surprising. I did not realize that Apple was that much better than everyone else in terms of margins.

    Given that RIMM is #2, why does wall street hate them so much?

    • Gilligan

      There's a non-trivial chance that RIM's sales will collapse. A high margin doesn't do much good if nobody's buying. They just had to recall 1,000 playbooks for software issues. How does that even makes sense? Why only 1,000? Are they making software changes on the fly and shipping out different versions without telling anyone?
      They don't seem to know what to do, and the CEOs seem almost delusional.

    • Nargg

      RIM is banking on old old technology for any and all profit today. Anything new they are selling at a loss, and losing more each day with some failures on these launches. They just don't have what it takes any more, and poor outlook for the future. RIM is dying.

    • Davel

      Thanks guys

  • Westechm

    It would be interesting to see a chart like the last one showing mobile total profit share by by operating system. I would really like to know how much money the cell phone manufacturers in total make using Androiid vis-vis the other OS systems.

    • That is harder to do because manufactures like Samsung, LG and Moto do not break out their data that way. However, given the higher profit margins that Android devices make compared to feature phones, I am betting the chart would look very similar with Nokia being Symbian, RIM bring RIM OS, Apple being iOS and Android being ost of what is left.

      • Rjs

        Some (non-trivial) proportion of Samsung's sales would be Bada.

      • asymco

        3.5 million units to be precise.

      • westechm

        I picture pie charts for total profit and units sold, with the following segments: Dumb phones, Symbian, iOS, Android, Bada, Microsoft, etc. I am aware that it would be difficult to separate these classes for Samsung, etc., but rough estimates may be possible. I suspect the error introduced would be small when you look at the total picture.

        Also, pie charts comparing these over time would be very informative.

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  • Tom

    Moral of te story for Nokia – make one great device instead of 100s of garbage ones.

    @Davel why do analysts hate RIMM? Would you invest in them right now? I have played around with blackberries and theIr software feels clunky, devices feel like frankenstains with both touch and keyboard support. Their stuff just lacks inspiration. They are riding that e-mail client wave straight into a rocky shore.

    As Jobs once said about M$ and this is also true about RIMM imho – “the only problem with Microsoft is they just have no taste…”

    • Davel

      I have watched rimm from a distance for over a year now. It always falls only to climb again. Horaces charts always show rim with a very strong showing. My read is they are doing well in emerging markets. I have a bb from work. It was replaced in the past year because the old one failed.

      The browser sucks and the new one has smaller keys which is harder to use. I don't know if the browser is because of new code, a bad configuration or an artifact of iPhone and android having good browsers so web sites ignore rimm.

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  • Edwin

    I guess we're back to the old truism: Apple is the BMW of tech.

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  • Jason A.

    Google and Apple are different animals. – for the most part. Google makes $$ by selling you (the user) to advertisers. Apple makes $$$$$$ by selling you good products. Although Apple does have iAd now, and it is directly competing with Google for advertising dollars – and doing quite well, I might add. But from an investment standpoint, Apple’s approach is clearly the winner. Yes, iPhone takes more than 50% of the profit of the entire mobile phone industry. But that is only part of the story. Apple makes more $$$$$$$ than everything Google does combined, on just the iPhone alone. Apple’s business approach makes Google’s look like it is scrounging for dropped change at the fair.

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