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A new view into the phone market

The profitability (aka Profit/Phone x Phones Sold, aka Rawr) chart is a great way to see the “shape” of the industry at a glance, with attention to volume and profitability.

What is missing however is a perception of the sales level and the pricing of the products. To help in that regard, I prepared an extension to the profitability chart which covers the price and sales for each participant.

You can interpret this graph as an extension of the profitability chart where the “empty” or white areas above each profit area are payments to suppliers and operating expenses. Thus the sum of empty and filled areas (above zero) are equivalent to revenues. If the sum of the empty and filled areas are greater then revenues (i.e. they extend below zero) then the difference is operating losses.

The top of both empty and filled rectangles are set at the average selling price per phone (and the top of each filled rectangle is the operating profit per phone). The width of both rectangles is the volume of phones shipped.

The things you can read into this chart are:

  • Margins at a glance (ratio of filled area to total area)
  • Sales as well as profit relative to peers (top of each box relative to others)
  • Pricing power (overall top relative to competitors)
  • Any combination of the above

Finally, the sum of all the areas are the overall market revenues for the quarter. Sum of white areas are expenses and sum of solid areas are profits & losses.

A natural evolution of this chart would be to animate it across multiple quarters/years.

  • Poxy

    Nice improvement. More information, no extra clutter.

  • Omar grant

    Nice chart, the animated version would be interesting indeed. I’m glad Horace keeps up with all the minute details on the industry and it’s comparative performance with Apples business model and their individual outcomes. Always looking forward to the new data from this site.

  • Info Dave

    Something else that I read into the chart is that the white area represents the contribution to the economy. This expense is income to a vendor, and a paycheck to many people. Even though Apple is making a relatively small number of phones, their total expenses are on par with Samsung and Nokia.

    • David

      That interpretation doesn't seem quite right to me. Any response, Horace?

      • asymco

        The "contribution to the economy" is getting dangerously far off in interpretation. The white area includes payments to component makers, assembly of components, sales expenses including advertising, development costs and any number of other costs.

        But saying that they contribute and that the profits don't is problematic. The operating profit is still subject to taxation (which may contribute to the economy (or not)) and that profit may actually be part of a larger business which can use it to offset losses (e.g. Samsung).

      • David

        Sorry, I was clearer. I mean does the interpretation sound right that Apple's total expenses are on par with Samsung and Nokia? Can we divine that from this chart?

    • EWPellegrino

      Nope, the contribution to the economy is the total selling price. If a hundred firms pass a $1 widget between each other before selling it to the consumer for $1, then the contribution to the economy is still $1.

      • Nangka

        There's also the multipier effect with every $1 in the box would probably be "income" of some more people (vendors' vendors) a few times over.

        But this information is represented by the revenues of all players and is not really relevant to the business performance analysis here – that Apple is making almost half of what it sells, and also from Nokia's box, that if not for its dumb phone bulk, it probably will have its solid area much bigger.

  • Nate

    Amazing! What a clear and beautiful visualization.

  • Ralph

    This is a really splendid chart. Thank you.

  • David Hamilton

    Really, really like this chart: very informative.

  • CndnRschr

    Yikes, that data must really sting the eyes of any smartphone player not in Cupertino.

    Not to mention the amazing open air "mud slinging in your underwear" going on between Google and Microsoft over patents: http://techcrunch.com/2011/08/04/gentlemen-take-t

    • addicted44

      What's funny is that RIM also looks pretty good here.

      It also seems to justify Nokia's position that Android would not have led to profitability. RIM makes slightly less profit than HTC+Samsung (which include profits from WM6, WP7 and Bada), and RIM is supposed to be struggling.

      The questions are whether the low Android profits is a temporary phenomenon, whether they are an Android phenomenon or an integrated/modular issue, and whether Nokia could somehow have caused a disruption which would have improved the profit distribution if they had picked Android.

      If its an integrated device issue, then WP7 is going to do nothing for Nokia. If its either an Android issue, or if Nokia's might is sufficient to overcome the issues with an integrated platform, then Nokia might still rise up from the ashes.

      • CndnRschr

        True, for all of the premature eulogies for RIM, its still making a lot more money than most of the Android OEMs due to its vertical integration. RIM isn't down for the count. The trends aren't great but I think this reflects move to a lower marketshare for the company as it consolidates into smaller but profitable niches. As long as it can stabilize that transition and maintain profits, its ecosystem be around for a while. While the Android ecosystem will also be long-lived, I doubt its current OEMs will enjoy much stability – especially with Microsoft sitting in the tree blowing kisses at them for their cheques. "Just love your money guys but why don't you mosey on over here, use our software and actually get something for what you are paying us for?"

      • El Aura

        RIM is riding a network (BBM) and installed base wave that is bound the come down sooner or later.

      • EWPellegrino

        There are still significant advantages to businesses in using RIM, and they aren't all replicated by using Good as a back end to an employee's own iPhone or Android.

        Consider a road warrior type. He or she spends months out of every year away from home, possibly internationally, and depends upon mobile – using large quantities of call time & data for work purposes. If they use a personal phone then they have a far bigger problem every month generating their expenses, because they have to go through their cellphone bill and itemize which are work and which are personal. Should the employer choose to simply pay the entire bill, and simplify the process then the phone becomes a taxable benefit (at least in the UK).

        Carrying a second phone around has become second nature for these people, and it's no more an inconvenience than the corporate credit cards in their wallets. These people may not make up as big a market as RIM currently has, but they probably do represent enough people to support a business.

  • Anon

    I believe the title should be "A new view…"

    • asymco

      Wow, did not even see that.

  • Kristian

    Shame on me… I just got..

    köhöm..

    This is the beautiful char as ever. Horace is not just ready for the AAPL $1000. Then again what is few billion dollars between friends ;)

  • Vatdoro

    Apple took 2/3 of the smart-phone profits last quarter. This graph is for ALL mobile phones. What percentage of all mobile phone profits did Apple take?

    • Jeff

      2/3 of smart-phone profits is essentially 2/3 of all phone profits. I believe Horace has mentioned this before, but basically no one is making very much money on dumb phones, and losses are probably evening out any profits.

  • Kristian

    Sorry… .Try this.. When exactly does Apple hit these marks.. 200 billion dollars in cash? 1 trillion dollars worth? 50 billion dollars in Q1, …. I just love Tim Cook. He is Steve Jobs times two.

    • Kristian

      So sorry.. I mean Apple Q2 and not Q1.

  • http://thinkingspot.me/blog Stephen Howard

    I'm not sure how you'd correct this, but there's something vaguely nonsensical about the bars where profits are negative. Technically, the negative profits should somehow be taking a bite out of the overall revenues picture, instead of making it taller. I know it all works out numerically, but from a visual perspective, it makes the bars bigger (taller) than they should be.

    • Nangka

      Yes. The average sale price should be the total vertical length of the boxes (both clear & solid), not how high it reaches at the X-axis.

    • addicted44

      I think Horace's chart is correct and losses should not be taking a bite out of total revenues, because they are independent of them.

      Maybe a better way to think of this is as 2 different charts superimposed over each other. One chart (empty boxes) is a chart for revenues, while the other chart (with solid boxes) is a chart for profits.

      I don't think losses should be taking a bite out of revenues…In an equation, PROFITS/LOSSES = REV-EXP, so the Revenue is actually a component of the losses.

      One possible idea (although I still prefer the chart as presented) would be to make the losses clear boxes because the clear parts indicate expenses, and for loss making entities the expenses = both the parts above and below the zero line.

      • addicted44

        Edit: "I think Horace's chart is correct" … I don't think correct is the right term to use, but rather, clear/appropriate?

  • Ben

    Holy heck. Nice visualization. Really shows how much room Apple has to fight on pricing if they ever need to in order to continue growth. And until that time–if it ever comes–it shows how much each sale contributes towards their war chest which will allow them to compete on innovation (and acquisition a la the Nortel patents) rather than immediately racing to the bottom of the barrel.

  • Frank

    The chart also shows that more than 50% of all phones are sold at a loss!

  • Westech

    Very, very interesting. Would it be possible to Dow similar chart for smart phones only?

    These numbers are ex S, G and A. It looks like Samsung's profit per unit would be pretty near break even (or less) if this were applied by a rational formula. Apple's OX is less than 10%, or about $60 per phone. I am guessing that Samsung's is about 15% or maybe $15 per phone. I would guess that really make a profit on their smart phones, but not a lot.

    • asymco

      I would be possible if the data were available. The only data that may be available is the volume (and even some of that is estimated). We don't have pricing or operating margin by vendor.

    • asymco

      These numbers do include SG&A. They don't include taxes, depreciation or interest income.

      • westech

        Horace,

        According to the latest 10Q, Apple's revenue before SG&A for iPhones and related products in the 3rd F Q was 13.331 billion dollars for 20.338 units.

        This works out to $655/unit before SG&A, which is close to your number so clearly Apple's numbers, at least, is before charging SG&A. I assume that the numbers for the other vendors are calculated on the same basis or you would have noted the difference.

        Apple's SG&A across the board is less than 10% or gross revenue, tending down to 9%. I think you will find that this is much below comparable businesses.

      • asymco

        I was referring to the profit figure (solid area) is estimated as gross margin minus SG&A and R&D. Pricing is what Apple is able to obtain in the market and is, as you point out, Revenue/units shipped.

      • westech

        Ah, so. The colored areas are not just COGS, but include SG&A. That's why your apparent gross margin for Apple is so low (46%). I estimate it as closer to 58% for the quarter (SP-COGS)/SP.

        I am curious. What did you take as SG&A for the various companies (as a % of revenue)? Apples we know yo be 9-10%.

      • asymco

        I did not have to take the SG&A estimates for other companies. I'd have to check again but I believe they all report operating margins (for some it's reported for the division that deals with phones or telecom).

      • westech

        I'm sorry, but I am confused.

        Gross margin is conventionally taken to be revenues less COGS. Operating income is conventionally gross margin less operating expenses (before taxes). All of these are conventionally reported on the income statement.

        Apple does not report operating income by market segment, in this case iPhones. They do report revenue. I don't believe that other companies break out operating expenses based on market segment either, so I infer that your numbers are gross margins in the conventional sense. One may infer it by allocating the same rate of operating expenses based on sales which for Apple is 9 to 10%. I assume that other company's operating expenses are higher, probably around 15% of sales.

        Can you clarify what you are actually using so my confused mind can be at ease?

      • asymco

        Indeed they do report operating performance by division (and they do not report gross margins)
        e.g. Nokia: http://investors.nokia.com/phoenix.zhtml?c=107224

        The reporting varies by company but I obtain all my data directly from company filings (usually presentations for investors.)

        I can provide links to every vendor's source data. Apple requires a bit more inference but it's not particularly difficult.

      • westech

        Thank you. My US-centric view and the language that goes with it got in my way.

    • Martin

      The animation would at least point to what such a chart would look like. The smartphone market is steadily eating the non-smartphone market, so extrapolating the animation would give you a ballpark idea of what the smartphone only market is trending toward.

      Also the chart makes somewhat clear why Apple hasn't done a prepaid phone – I don't think they can get the costs down into the prepay price market as yet.

  • iphoned

    Are these for all phones sold by a vendor, or just smartphones? I.e. Are we Comparing price/profitability of all Samsung phones, for example, vs just Apple or Rim smarphones?

    • asymco

      These numbers are for all phones. I use the word "phones" to refer to all phones and "smartphones" to refer to smartphones.

    • EWPellegrino

      The data is for all handsets, it's obvious if you consider the width of the bars. I doubt there's enough data from Samsung to even estimate their smartphone ASP or profits with any degree of accuracy.

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

    This is really one of the best things you have ever done. T-shirt candidate?

    • addicted44

      I second this idea. This is one of the best charts I have seen on this website (and that is saying a lot, considering how many amazing charts Horace puts out).

  • john

    Very nicely done. Love the animation idea.

  • http://twitter.com/jaanus @jaanus

    Horace, you’re doing excellent work on this blog with data visualization, really enjoying it. Thank you, and keep it up.

  • EWPellegrino

    What I find interesting here is that the ASP for Apple is about the selling price of the unlocked 16gb iPhone-4, so presumably the 3GS must be a very small proportion of their sales, three 32GB iP4s must be sold for every 16GB 3GS.

  • michael

    This chart (alongside the vector chart) is the best work you've done in the year I've come here. It's nearly a complete snapshot of the competitive landscape.

    My only comment would be to remove the losses from the chart. As Stephen said, the eye tends to add the revenue and loss together, when the opposite is true. I think a big fat empty box would be humiliation enough for Nokia.

    • EWPellegrino

      Or maybe use some sort of diagonal hatching for the losses, that would make them more clearly distinguished.

  • http://can-turtles-fly.blogspot.com Sivaram V

    Good job producing this graphic. It's one of the best I have seen, and other have pointed out, clearly illustrates the marketplace and various strategies being pursued (e.g. low price, high volume; high price, low volume; etc).

  • Jim Moskun

    Would be interesting to see Samsung's Android & Badu sales represented by different shades (based on your best estimate)

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  • Ajay

    Great chart Horace.

    Sums up Apple strength in the phone industry pretty well

  • http://www.ringcentral.com/business-telephone-service/index.html Business Telephone

    Like everything, it depends on how you look at it. What you're really doing is comparing apples to oranges. Android is an operating system. iPhone is a phone.

    What is the most popular smartphone? iPhone.

    What is the more popular operating System, Android or iOS? Counting iPods and iPads, it is iOS.

    So Apple has the most popular phone and most popular mobile operating system, and they are dead in the water?

    Read more: http://www.businessinsider.com/android-iphone-mar

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