Apple, RIM profit margins far exceed market share

Posted:
in iPhone edited January 2014
With just 3 percent of the global cell phone market, smartphone makers Apple and Research in Motion command an estimated 35 percent of total worldwide operating revenue -- and their share is expected to grow even more.



Deutsche Bank analyst Brian Modoff, as cited Monday by The Wall Street Journal, predicts that this year the two companies will control 5 percent of the total cell phone market, cornering 58 percent of the total operating profits.



The report states that Apple and RIM were responsible for 32 percent of the smartphone market for the first quarter of 2009. Smartphones make up 13 percent of the total worldwide cell phone market.



The companies' massive profits lie in the subsidies. The report states that each iPhone has a $400 subsidy, while the average BlackBerry sale earns $200, as calculated by Modoff. Those totals far exceed the market average of $100.



"Both Apple and RIM have advantages with segments of the market that will make them tough to beat," The Wall Street Journal reports. "The iPhone boasts thousands of consumer applications churned out by outside developers, while Blackberry's e-mail service is popular for its efficiency and security."



Other cell phone manufacturers make virtually nothing, while market leader Nokia ? based on the sheer number of phones it moves ? manages 55 percent of the cell phone market's profits, off of a 46 percent market share.



But just last week Nokia reported a 66 percent drop in quarterly profits, and investors fear that Apple and RIM will continue to chip away at the handset-maker's market share. Recent Apple and RIM product launches of the iPhone 3GS and BlackBerry Tour, respectively, proved very successful.
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Comments

  • Reply 1 of 38
    What people miss about Apple as a company and as a stock is that it is not a stock priced only for its future growth opportunities (e.g., as Palm is), or only for its current earnings (e.g., as Samsung, LG are), but for both.



    Very few companies are able to do this - i.e., execute both their "E" and their "P/E" well. (Have to give RIM a lot of credit too.)
  • Reply 2 of 38
    Really? A Palm Pre advertisement on the page? What a waste. If I was interested in the Pre, I'd be at the palminsider website (as if).
  • Reply 3 of 38
    Quote:
    Originally Posted by FormerARSgm View Post


    Really? A Palm Pre advertisement on the page? What a waste. If I was interested in the Pre, I'd be at the palminsider website (as if).



    Just catching this? I guess you weren't around for the Zune ads.
  • Reply 4 of 38
    brucepbrucep Posts: 2,823member
    Quote:
    Originally Posted by Proximityeffect View Post


    Just catching this? I guess you weren't around for the Zune ads.



    I once saw a zune accessory on the subway once
  • Reply 5 of 38
    SpamSandwichSpamSandwich Posts: 30,721member
    As I recall, the ads here are chosen more or less at random based on keywords in the articles. There's no human behind the decision.
  • Reply 6 of 38
    ajitmdajitmd Posts: 365member
    Another big advantage of the iPhone is an entire Unix based OS with a very innovative user interface. This user interface will be further enhanced with features like being able to rotate objects with fingers, etc. I am just surprised that Apple has not sued Palm over the multi touch UI that Palm copied. Some of these UI features have been patented by Apple. This stock has been my main bet in the tech sector.



    RIMM has a great product, especially for e-mail and security. However, its OS and UI have limitations. I would expect Apple should be able to integrate those features into the iPhone plus security features like fingerprint recognition or even iris recognition. The great advantage that RIMM has over Apple is in marketing... it is able to market its products across multiple carriers in the same markets... and even integrating multiple radio technologies like GSM, CDMA/EVDO/3G and UMTS/3G as well as collect subsidies. Huge gross and net margins. Only MSFT, QCOM, are in the same league. Been having a side bet here.



    The wild card is Palm. They got great software tech that needs to be optimized for faster execution. They also need the equivalent of iTunes... their freeloader model is going to last. The hardward sucks... they need to dump the keyboard and go for soft keyboard. Very important for multiple language use, especially Chinese. Also the hardware is cheap looking, the screen too small. These are issues that can be overcome since their core OS is quite good. What they do not have is the luxury of wasting time and money. I got a long shot side bet here.



    The people who run Nokia are not overpaid dummies like Moto... when thing go wrong they change management. I do think they are a little bit too arrogant and smug. For years, they + Ericsson were in denial regarding the CDMA and even WCDMA tech... then they lost in court. They created UMTS/WCDMA just to dilute QCOM IPRs. However, the UMTS/WCDMA tech is defective and that is one of the reasons that ATT has some difficulty with its network. WAP and Symbian + UI are yesterday's software. They may reinvent themselves, but they are way behind the ball. Another "me too" UI on top of Symbian is not going to be enough to displace the leaders' ascent... it will have to be disruptive tech and that is unlikely.
  • Reply 7 of 38
    Quote:
    Originally Posted by FormerARSgm View Post


    Really? A Palm Pre advertisement on the page? What a waste. If I was interested in the Pre, I'd be at the palminsider website (as if).



    I vaguely recall from a previous discussion that AI does not get ads from Apple. So they have to rely on non-Apple sources.



    Can someone confirm this?



    If this is true, it is stupid (and spiteful) on Apple's part.
  • Reply 8 of 38
    nasseraenasserae Posts: 3,153member
    Quote:
    Originally Posted by anantksundaram View Post


    I vaguely recall from a previous discussion that AI does not get ads from Apple. So they have to rely on non-Apple sources.



    Can someone confirm this?



    If this is true, it is stupid (and spiteful) on Apple's part.



    There is no point in spending advertisement money on people who are already familiar with your products and services. There were, and still, Apple products ads on AI by Apple retailers but not Apple since visitors here might be interested in getting good deals on Apple products. Apple will get better results targeting people who don't own Apple products. On AI there are two types of people; whose who love Apple products, and those who hate Apple and their products
  • Reply 9 of 38
    richlrichl Posts: 2,213member
    Quote:

    The companies' massive profits lie in the subsidies. The report states that each iPhone has a $400 subsidy, while the average BlackBerry sale earns $200, as calculated by Modoff. Those totals far exceed the market average of $100.



    That might be true for Apple but it's not true for RIM. RIM makes the vast majority of its money from selling its back-end servers and e-mail subscription services.
  • Reply 10 of 38
    aaarrrggghaaarrrgggh Posts: 1,570member
    So does this mean that (outside of the US) Nokia isn't selling as many smart phones as they used to? What does this mean long-term for other handset manufacturers? I wonder what HTC's share of profits is...



    But the $400 subsidy for the iPhone? I thought that was debunked and the real subsidy is only $200-250...
  • Reply 11 of 38
    cameronjcameronj Posts: 2,357member
    Quote:
    Originally Posted by anantksundaram View Post


    I vaguely recall from a previous discussion that AI does not get ads from Apple. So they have to rely on non-Apple sources.



    Can someone confirm this?



    If this is true, it is stupid (and spiteful) on Apple's part.



    Spiteful?



    I mean, ever heard of journalistic integrity?
  • Reply 12 of 38
    eye forgeteye forget Posts: 154member
    Quote:
    Originally Posted by anantksundaram View Post


    What people miss about Apple as a company and as a stock is that it is not a stock priced only for its future growth opportunities (e.g., as Palm is), or only for its current earnings (e.g., as Samsung, LG are), but for both.



    Very few companies are able to do this - i.e., execute both their "E" and their "P/E" well. (Have to give RIM a lot of credit too.)



    No stock is priced on current earnings. Like steering a car looking backwards. Companies don't execute the P/E, the market does.
  • Reply 13 of 38
    tenobelltenobell Posts: 7,014member
    Mozilla needs to get in gear and get a mobile browser out for the BlackBerry. The Blackberry browser is terrible and RIM cannot seem to get their act together. This is a prime market for Mozilla and their best opportunity to compete for marketshare with Safari.
  • Reply 14 of 38
    virgil-tb2virgil-tb2 Posts: 1,416member
    Quote:
    Originally Posted by FormerARSgm View Post


    Really? A Palm Pre advertisement on the page? What a waste. If I was interested in the Pre, I'd be at the palminsider website (as if).



    There are ads on this site?
  • Reply 15 of 38
    anantksundaramanantksundaram Posts: 18,956member
    Quote:
    Originally Posted by Eye Forget View Post


    No stock is priced on current earnings. Like steering a car looking backwards. Companies don't execute the P/E, the market does.



    What are you talking about?



    All stocks are priced on the basis of the earnings capacity of the assets-in-place (which is what I mean by 'current earnings'; a detailed wording would have been 'capitalized value of earnings from assets currently in-place) and the NPVGO - net present value of future growth opportunities - as reflected in its P/E. 'Executing P/E' was simply meant as a short-hand reference to a company executing its strategies to create value from future growth (that is why E and P/E were in quotes in my original post; I assumed it would be understood - sorry for any confusion).
  • Reply 16 of 38
    anantksundaramanantksundaram Posts: 18,956member
    Quote:
    Originally Posted by cameronj View Post


    Spiteful?



    I mean, ever heard of journalistic integrity?



    Oh, in that case (and as an example), the NYTs and WSJs of the world must have no journalistic integrity at all?
  • Reply 17 of 38
    virgil-tb2virgil-tb2 Posts: 1,416member
    Quote:
    Originally Posted by AjitMD View Post


    Another big advantage of the iPhone is an entire Unix based OS with a very innovative user interface. This user interface will be further enhanced with features like being able to rotate objects with fingers, etc. I am just surprised that Apple has not sued Palm over the multi touch UI that Palm copied. Some of these UI features have been patented by Apple. This stock has been my main bet in the tech sector.



    RIMM has a great product, especially for e-mail and security. However, its OS and UI have limitations. I would expect Apple should be able to integrate those features into the iPhone plus security features like fingerprint recognition or even iris recognition. The great advantage that RIMM has over Apple is in marketing... it is able to market its products across multiple carriers in the same markets... and even integrating multiple radio technologies like GSM, CDMA/EVDO/3G and UMTS/3G as well as collect subsidies. Huge gross and net margins. Only MSFT, QCOM, are in the same league. Been having a side bet here.



    The wild card is Palm. They got great software tech that needs to be optimized for faster execution. They also need the equivalent of iTunes... their freeloader model is going to last. The hardward sucks... they need to dump the keyboard and go for soft keyboard. Very important for multiple language use, especially Chinese. Also the hardware is cheap looking, the screen too small. These are issues that can be overcome since their core OS is quite good. What they do not have is the luxury of wasting time and money. I got a long shot side bet here.



    The people who run Nokia are not overpaid dummies like Moto... when thing go wrong they change management. I do think they are a little bit too arrogant and smug. For years, they + Ericsson were in denial regarding the CDMA and even WCDMA tech... then they lost in court. They created UMTS/WCDMA just to dilute QCOM IPRs. However, the UMTS/WCDMA tech is defective and that is one of the reasons that ATT has some difficulty with its network. WAP and Symbian + UI are yesterday's software. They may reinvent themselves, but they are way behind the ball. Another "me too" UI on top of Symbian is not going to be enough to displace the leaders' ascent... it will have to be disruptive tech and that is unlikely.



    I think I agree with most of your analysis here. Especially about Nokia not being dummies.



    IMO the market is about to enter the second "post-iPhone" phase. The first being a phase of denial and the creation of various "iPhone killer" products from each of the big companies. It seems to me that these have all failed in the sense that they haven't actually killed the iPhone's momentum. Even as some of them have caught on in small numbers they have at the same time validated Apple's basic approach to the market by means of their shameless copying.



    The second phase is where, knowing that they can't beat iPhone on their own, companies start to buy up other companies and products and probably ditch some of their own products and divisions at the same time. It seems to me that both Palm and RIMM have giant targets on their backs and are ripe for being swallowed whole. It also seems likely to me that there are too many OS's floating around out there and some of them will have to be abandoned.



    For instance, despite the fact that Nokia just bought it up and invested in it, I don't see how Symbian really has any future in smartphones at all. That move strikes me as more bravado than common sense. At best it's just a stop-gap move while they figure out what their *real* smartphone OS play is.



    Scariest of all is that Microsoft is way, way behind in this game, given that Winmobile 6.5 is still nowhere near a release date and that it's really just a patch of sorts, with the *real* "new OS" being Winmobile 7. They have enormous buying power and everything to lose. They also typically get ahead by buying the competition.



    IMO the next year and a half will bring some desperation moves and almost certainly some of the big fish swallowing some of the little ones.
  • Reply 18 of 38
    cameronjcameronj Posts: 2,357member
    Quote:
    Originally Posted by anantksundaram View Post


    Oh, in that case (and as an example), the NYTs and WSJs of the world must have no journalistic integrity at all?



    If the NYT wrote ONLY (or at least primarily) about the Ford company it would certainly be a conflict of interest to accept ads from Ford. Do you really disagree?



    Do you really think that using WSJ or NYT as a counter example is accurate? Clearly a newspaper that writes about just about everything can't not accept ads from companies that it covers. But AI? Cmon, you can't really think that counter example is accurate can you?
  • Reply 19 of 38
    chris_cachris_ca Posts: 2,543member
    Quote:
    Originally Posted by RichL View Post


    That might be true for Apple but it's not true for RIM.



    So they do not make $200 from the sale of a blackberry?
  • Reply 20 of 38
    samabsamab Posts: 1,953member
    Quote:
    Originally Posted by Virgil-TB2 View Post


    I think I agree with most of your analysis here. Especially about Nokia not being dummies.



    IMO the market is about to enter the second "post-iPhone" phase. The first being a phase of denial and the creation of various "iPhone killer" products from each of the big companies. It seems to me that these have all failed in the sense that they haven't actually killed the iPhone's momentum. Even as some of them have caught on in small numbers they have at the same time validated Apple's basic approach to the market by means of their shameless copying.



    The second phase is where, knowing that they can't beat iPhone on their own, companies start to buy up other companies and products and probably ditch some of their own products and divisions at the same time. It seems to me that both Palm and RIMM have giant targets on their backs and are ripe for being swallowed whole. It also seems likely to me that there are too many OS's floating around out there and some of them will have to be abandoned.



    For instance, despite the fact that Nokia just bought it up and invested in it, I don't see how Symbian really has any future in smartphones at all. That move strikes me as more bravado than common sense. At best it's just a stop-gap move while they figure out what their *real* smartphone OS play is.



    Scariest of all is that Microsoft is way, way behind in this game, given that Winmobile 6.5 is still nowhere near a release date and that it's really just a patch of sorts, with the *real* "new OS" being Winmobile 7. They have enormous buying power and everything to lose. They also typically get ahead by buying the competition.



    IMO the next year and a half will bring some desperation moves and almost certainly some of the big fish swallowing some of the little ones.



    Verizon sold more LG Voyagers than AT&T selling the original iphone.



    The cell phone makers and the carriers realized they don't need to kill the iphone in sales in order to make a difference. The iphone killers achieved some thing really big --- the death of the revenue sharing model in the orginal iphone.



    The second phase is where RIMM has been selling 3 of the top 5 smartphone models and the iphone isn't number 1. Palm realizes that the market is big enough for many players --- and that there is a room for them at second or third place.
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