updated 06:30 pm EDT, Mon May 6, 2013
Giants take 100 percent of all smartphone profits between them
Samsung is steadily improving its profitability in the smartphone area, but Apple continues to be the dominant player when it comes to making money on smartphones sales according to the latest report from Canaccord Genuity. Apple's lower profit margin on smartphones in the first calendar quarter of the year led to a significant drop in its share of smartphone profits but was enough to allow the iPhone maker to claim 57 percent of the entire industry's profits, with Samsung taking the remaining 43 percent.
Between them, Apple and Samsung have taken 100 percent or more of the profits of the smartphone industry for more than a year now (more than 100 percent of profits is possible due to losses from other makers). Simply put, no other company making smartphones is showing a profit on doing so (and in some cases incurring significant losses). Motorola, for example, continues to report a one percent loss on smartphone sales, with BlackBerry, Sony, and HTC reporting no profits either. LG was able to squeak out a one percent profit on its handset sales in the first quarter.
Over the holiday quarter, Apple had accounted for as much as 72 percent of all profits in the smartphone industry, owing to Samsung's aggressive loss-leader and expensive marketing, which takes away from profits. Despite the effort, Samsung and the Android platform generally continue to lose marketshare in the North American segment, particularly for tablets but also in smartphones.
Apple's drop in profits is blamed on softening demand for the iPhone 5 (perhaps in anticipation of a new model coming soon) and stronger-than-expected demand for the lower-profit iPhone 4S and 4 models. Samsung was also able to increase margins on its phones from 20 to 22 percent.
The results and patterns beg the question of how much longer other companies can afford to stay in the smartphone business. For nearly two years, all the profits in the industry have gone to just two players, and apart from occasional exceptions such as the new HTC One phone, rivals to Apple and Samsung appear to be unable to generate any real buzz or gain footing in the market.
Apple and Samsung are also the only two companies that even have operating margins on smartphones in the industry -- all the other makers operate a close-to-break-even margins or, in the case of Motorola, take a significant loss of up to 18 percent on the sale of each handset, reports AppleInsider. Profit margins for Apple's iPhone may take a further hit next quarter, as the rumored "iPhone 5S" may not be announced sometime in June as expected, and another rumored "low-cost" prepaid iPhone model may not appear until the fall. Samsung, meanwhile, continues to announce new models for both the low-end (today's Galaxy Core announcement) and the high-end (the recent Galaxy S4 model).