Categories

The Profit/Phone x Phones Sold Chart

The following chart shows the current profit distribution between phone vendors with an eye toward identifying volume dependencies. The vertical axis represents operating profit per phone and the horizontal axis the number of phones sold.

The area of each vendor bar is therefore the total operating profit that vendor captured. A vertical (portrait) orientation implies high profitability with relative low volume while a horizontal (landscape) orientation implies a high volume/low profitability focus.

The other important observation is that bars can also be negative. Those vendors’ names are listed below the bars rather than within them.

You can also compare the chart with the one from last quarter:

The Rawr Chart | asymco

  • timnash

    With Samsung's smartphone market share reported by IDC etc. as just less than Apple, I wonder if their feature phone business (over 50m last quarter) runs at break even. Nokia's price cutting must have really put pressure on margins.

    • horace the Grump

      Gut instinct would suggest that Samsung's feature phone business runs at a loss…

  • LTMP

    This is my favourite chart of all the amazing charts you put together.

    I'd love to see a quarter by quarter animation of it, going back to a few years before the launch of the iPhone.
    Perhaps it could be done by placing each chart in a separate tab, then just clicking from tab to tab.

    For me, this would be the ideal way to grasp the changes over time.

  • TheTedder

    It would be interesting to see a "smartphone only" version. What would Samsung gloom like in that chart?

    • asymco

      We don't have smartphone value (sales and pricing and margin) data for all vendors. We do have shipments data for most and that analysis will be posted soon.

      • Kristian

        How does this look if figures are taken from the revenue?

      • asymco

        That would be price on vertical axis and volume on horizontal. Might be interesting. I'll try it.

  • Oases

    Seconding TheTedder’s desire to see a smartphone only version of this chart. And then again in the future after the iPhone nano comes out. :-)

  • Abhi Beckert

    Is apple’s profit just from hardware or including app/media profits?

    $300 per phone seems unusually high, even for apple. I’d hate to be one of their competitors, if (when?) they start trying to compete on price in addition to quality.

    If apple drops the outright (no contract) price by a few hundred bucks I can’t see samsung matching it. Seems there’s quite a few features they could drop fom the current iPhone to bring costs down (retina display for starters).

    • KenC

      I think you'll find the operating profit number very easy to calculate for the iPhone. You only need to look at some of the Non-GAAP to GAAP reconciliation charts that Apple did when they deferred revenues.

      As Horace and many have noted in the past, App Store profits are minimal, as Apple runs the business just barely above break-even.

      And, as for some asking for smartphone-only data, I imagine it would be next to impossible to suss out that info, as it probably was very hard for Horace to make educated guesses about the operating profit of the 8 cellphone companies especially for large companies like Samsung.

    • huxley

      Rather than dropping the Retina Display altogether, they could use the one on the iPod touch which isn't an IPS display (and hence cheaper) but still maintains the high-res.

    • westech

      I suspect that the $300 per phone is low. I believe the operating margins are ca. 55%, and the average SP of the iPhone is about $660, or about $360/phone. The margins will drop after the introduction of the iPhone 5 because of start up costs and they are starting on a new learning curve.

  • Pingback: iPhone Outsells All Others by Wide Margin-Chart | Broker's Call

  • Jbelkin

    Apple sells every phone they make at thatprice – consumers value theirphone that much more. Consumers are not morons. They recognize other oses are merely fine when its a free inckuded os but that apple hardware & apple ios are worth ten times what the second choice is worth. Also keep in mind rim revenuesinclude their servers whichis lumped in together. WhileiTunes are another division and not iPhone revenues.

  • Lou Mannheim

    Let's cut down to the basics- only the products that make a profit for the manufacturer will eventually be kept alive. The reason for business is to make money, not to achieve market share or (unprofitable) growth.

    Also, the Android phone vendors don't really compete with the iPhone, they compete foremost with other Android phones. New generic phones are introduced every week with little to differentiate from the competition. This will leave maybe two or three suppliers of Android phones left in the end and Apple with perhaps 35% of global market share ("smartphones" will not stay relevant as a category for very long as almost all phones will be smartphones soon) and 90% of the profits.

  • http://michaelq.com.au MichaelQ

    Are these margins before or after Android makers pay off Microsoft and everyone else for licensing fees for their "free" OS? Not to mention the lawyers.

    Might as well be using Windows Phone 7 and just worry about making great phones.

  • Laughing_Boy48

    If Apple is basically walking away with most of the smartphone market's profits, why do the fund managers continue to say that Apple is facing too much of a threat from Android so they can't quite give Apple shares full valuation? What they say doesn't make quite of a lot of sense to me.

    • horace the Grump

      it easy to think of fund managers as having fewer brain cells than Homer Simpson… but their concern is well founded.

      If you were standing in 2006 and said that the smartphone business / computer business would look like it does today you would have been labelled a crank/weirdo/loony by just about everyone. But the fact is here we are. Apple is that what Horace calls a 'disruptor'.

      So you are a fund manage and you think that Apple is pretty great – but then you remember 2006 and how Palm/Nokia/Blackberry had their world at their feet… and then you think – could this happen to Apple??… then you remember IBM and Microsoft and AOL and all the others that have shone brightly but are now operating at or below industry average growth rates…

      In short, its called mean reversion and you would have a hard time convincing an fund manager that Apple can escape that particular law of investment gravity…

      • http://edaraquel.com Ed Araquel

        I would agree but none of the companies you mention have been innovators as much as Apple. "Creativity is recession proof."

      • jonshf

        Your description of how a fund manager might think does kind of sound like how Homer Simpson would think.

      • http://twitter.com/WaltFrench @WaltFrench

        I manage or co-manage about $6 billion of various funds — some global; some US diversified; some straight index funds. I mostly use objective rules for what measures work best in different economic and market regimes, rather than my subjective impressions of stocks that I “like,” so my views shouldn't be taken as “typical” for managers nor necessarily drive my portfolios.

        With over 20 years experience at it, I can certainly say I've seen superstars flame out; guaranteed steady earners implode; blue chips turn brown. These remind us that we aren't necessarily given the power to foresee the future. But every investment we make is essentially a forecast and so try we must.

        My ratios and growth rates don't understand “Steve Jobs,” “Android” or “Microsoft,” but they DO understand competition, disruption, recessions and consumer spending. They've seen innovators destroy existing markets, and yet have a tiger by the tail, then fall off. It's not just Palm/Nokia/RIM; hundreds of companies have at one time worn the popular crown. A few, like Motorola, get second and third tries. Not one in a thousand is like Apple: within days of bankruptcy, a decade later, a powerhouse.

        That's history, available to all. The question, though, is tomorrow: who will be faster at inventing the future? Apple has an incredible discipline. But Google has achieved critical mass (and it is not for ME to judge the means, and whether they'll be sued back to square one). So this is a great game as to whether NFC payments becomes a big deal, or whether the entire internet, like radio and TV 70 years before it, turns ad-supported, undercutting Apple's revenue model in a way that they can't compete.

        Apple has done a great job in pivoting with the iPhone; I believe there are enough creative people in Apple that if Android phones were given away for free (or rather, for the cost of being forced to watch ads every time you went online), Apple could invent a substitute. But these are speculations and reasonable people might not give Apple the credit (nor insulting them by saying they'd stoop to offering trash) for turning that way.

        That's why some people rate Apple much less than others. It faces substantial challenges to its success, even three years out. It is NOT guaranteed that they will keep up or grow as they have.

        And the only thing different about fund managers is that at the end of every quarter, clients judge their success and hire or fire them. Given that they are guaranteed not to be right every quarter, they make sure they at least have a clear statement as to their discipline, which we bloggers and commenters have no concern about.

        Oh, a PS: stock-based mutual funds have seen clients move towards other investments of late. If mutual funds were MORE hung-ho than other investors on Apple, this simple fact alone would depress AAPL's stock price: the biggest holders have to relinquish shares to less enthusiastic buyers. The whole question of who drives stock prices is MUCH more complicated than the Homer Simpson idea suggests.

        PPS: I've commented earlier about the misuse of the term, “law of large numbers” and also object to “mean reversion” as suggested here. Yes, many investors, including fund managers, misuse it. But it is a particularly bad misuse. There is almost no stable average to which anything investment-related should revert.

    • sawit s.

      Fund managers with the help of their 'analysts' know to paint a negative picture in order to acquire shares at a favorable price. Their doublespeak has been the only constant over dozens of quarters.

      • http://twitter.com/WaltFrench @WaltFrench

        If you have evidence of this you should report it to the SEC. They like to prosecute market abuses.

        Meanwhile, it's much more common, of course, for manipulation to OVERSTATE the value of a stock so that the company management can sell their shares at an inflated price.

        So evidence of what you claim would get lots of attention. You'd be a hero!

        Deliver.

  • Bob

    The fund managers need to move with the times, the old research and models are outdated and they have nothing new to replace them. Yes its true that something good could come along and replace apple with innovation and product that people want to move towards but right apple is only at the crest of the wave of the technologies it could get into. Think Apple will stop at what they have right now! They will enter new markets to expand their product line. It amazes me that the technology that all these companies use is basically the same just in a different software wrapper! and Apple seem to be the only ones that can get it right. People choose apple not because their hardware is great it is because their software is great!

    • http://twitter.com/WaltFrench @WaltFrench

      “… the old research and models are outdated…”

      Bob, were you following stocks in the internet/dot-bomb bubble? How'd that idea work for you then?

  • Russell George

    Dependence on volume for profitability increases the risk to profitability from component shortages, unless, of course, one is selling at a loss.

  • Ajay

    Brilliant.

    Apple has forever demolished the myth of marketshare = profit.

    It will still take a few years for thick skinned MBAs to understand this concept.

    Apple deserves credit for showing innovation will win eventually

  • Pingback: Android erreicht 48 Prozent Marktanteil

  • N8nNC

    Everyone laughs at the old saw "we'll price it below cost, then make it up in volume" but the grain of truth is that per unit cost goes down with increased volume. So you can increase profits (and potentially lower prices) by lowering costs. I am curious how Apple will be able to leverage even larger volumes. Presuming demand stays high supporting higher prices, then Apple's profit share growth will keep accelerating.

  • Walter Milliken

    I'd like to see a simple stacked bar chart related to this one: stack the average profit/unit (the height in this chart) on top of the per-unit cost; the total height would be the the average selling price/unit. This should show graphically which vendors are most vulnerable to market price pressure, and thus risk being driven out.

    Of course, the relative volumes within the low/mid/high price tiers affects this as well, but some of that should be implied by the ASP itself, since it seems to me that the market strata are largely reflective of relatively stable price-to-carrier bands.

    What I'm wanting to see here is whether Apple is significantly more efficient at producing/selling phones than the competitors and might be the "last man standing" if they deigned to participate in a pricing war (not that they necessarily need to).

  • Pingback: A new view into the phone market | asymco