Apple snags 50% of handset industry profits ahead of first 100M iPhone year

Posted:
in iPhone edited January 2014
In less than four years, Apple went from not making a dime on handset sales to commanding approximately half of the industry's profits, and is now poised to set the bar even higher by shipping 100 million iPhones over a 12-month span, financial experts say.



Although smartphones running Google's Android OS continue to gain share of total smartphone units sold, when it comes to profits, Apple remains the undisputed king, raking in roughy 50% of the entire handset industry's net earnings during the first quarter of 2011, according to Canaccord Genuity analyst T. Michael Walkley.



"Our [June] checks indicated continued strong sales of the iPhone 4, as it remained by far the top-selling smartphone at AT&T and Verizon despite the continued popularity of 4G smartphones and several new high-end Android smartphones," he said.



At Verizon Wireless in particular, Walkley said his checks indicated the iPhone 4 was the #1 selling smartphone during June despite six new high-end Android smartphones from OEMs such as HTC (Thunderbolt ? LTE, Incredible 2), Motorola Mobility (Droid X2), Samsung (Droid Charge - LTE), Sony Ericsson (Play), and LG (Revolution ? LTE) launching in the last couple months.



"Further, with Verizon not allowing subsidies to customers that are still under a two-year contract, we anticipate steady upgrades by Verizon customers to the iPhone will continue over the next several quarters," he said. "As a result, we believe the iPhone will remain the top- selling smartphone at Verizon throughout 2011."



That said, Walkley is forecasting Apple's share of smartphone unit sales to actually fall from an estimated 16.0% in 2010 to just 15.2% by the end of 2012. However, as consumers continue to trend towards smartphones, that 15.2% will equate to just over 100 million units, or roughly 25 million iPhones per quarter.



During the same period, the analyst estimates that smartphones running Android will see their share of the market soar from an estimated 22.6% to a market dominating 50%, jumping from 67.2 million units to 329 million units.







Still, Apple's iOS installed base is believed to be the key differentiator for Apple, as it runs on the iPad and iPod touch in addition to iPhones. As such, Walkley is modeling the iOS base to rise rapidly from 250 million devices in 2011 to 415 million by the end of 2012, easily outmatching Android to remain the industry's leading mobile operating system.



The analyst noted that his models assume Apple will not launch a lower-tier iPhone during 2012. Instead, he believes Apple will ship a modest mix of older iPhone versions such as the 3GS and iPhone 4 in order to create a more tiered portfolio. And even with those yesteryear designs, he still sees the company achieving its well-above-average gross margins despite the sub $400 average selling price the models will generate.







However, should Apple decide to introduce a new lower-tiered iPhone, Walkley's forward-looking market share estimates for the company could prove conservative.



"Perhaps the strong unit market share growth for Android could result in Apple introducing a broader portfolio of iPhones in order to better compete in more price sensitive emerging markets," he said.



Walkley reiterated his Buy rating on shares of the iPhone maker, raising his price target from $485 to $500 per share.
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Comments

  • Reply 1 of 49
    gatorguygatorguy Posts: 24,176member
    Just curious. . . Do all these handset manufacturers announce their net profits from mobile phones, Apple included? I've never seen them, so I'm assuming the "analysts" are simply making a semi-educated guess? I'm not sure.
  • Reply 2 of 49
    island hermitisland hermit Posts: 6,217member
    Quote:
    Originally Posted by Gatorguy View Post


    Just curious. . . Do all these handset manufacturers announce their net profits from mobile phones, Apple included? I've never seen them, so I'm assuming the "analysts" are simply making a semi-educated guess? I'm not sure.



    I couldn't say for sure whether they are educated or semi-educated guesses.
  • Reply 3 of 49
    gatorguygatorguy Posts: 24,176member
    Quote:
    Originally Posted by island hermit View Post


    I couldn't say for sure whether they are educated or semi-educated guesses.



    It seems like some analyst's are only semi-educated going by their conclusions.
  • Reply 4 of 49
    sierrajeffsierrajeff Posts: 366member
    Quote:
    Originally Posted by AppleInsider View Post


    In less than four years, Apple went from not making a dime on handset sales to commanding approximately half of the industry's profits, and is now poised to set the bar even higher by shipping 100 million iPhones over a 12-month span, financial experts say.



    I know that it's the nature of a capitalist company to maximize profits, but -- since Apple is sitting on a hoard of cash, and apparently winning the handset profit race by a huge margin, why not slash prices on the iPhone line and really put the competition against the ropes?



    Again, I'm not saying Apple *shouldn't* make money where it can. But if it could slash iPhone prices, still make some profit, and - say - get RIM out of the game, or seize back a big chunk of the mindless masses who're buying Android phones - wouldn't that be a good thing? Especially in the long term?
  • Reply 5 of 49
    bilbo63bilbo63 Posts: 285member
    Quote:
    Originally Posted by Sierrajeff View Post


    I know that it's the nature of a capitalist company to maximize profits, but -- since Apple is sitting on a hoard of cash, and apparently winning the handset profit race by a huge margin, why not slash prices on the iPhone line and really put the competition against the ropes?



    Again, I'm not saying Apple *shouldn't* make money where it can. But if it could slash iPhone prices, still make some profit, and - say - get RIM out of the game, or seize back a big chunk of the mindless masses who're buying Android phones - wouldn't that be a good thing? Especially in the long term?



    I'm gonna say "yes".



    Once you get an iPhone and make App and music purchases, you are less likely to leave the fold for another platform.
  • Reply 6 of 49
    cvaldes1831cvaldes1831 Posts: 1,832member
    Quote:
    Originally Posted by Sierrajeff View Post


    I know that it's the nature of a capitalist company to maximize profits, but -- since Apple is sitting on a hoard of cash, and apparently winning the handset profit race by a huge margin, why not slash prices on the iPhone line and really put the competition against the ropes?



    Again, I'm not saying Apple *shouldn't* make money where it can. But if it could slash iPhone prices, still make some profit, and - say - get RIM out of the game, or seize back a big chunk of the mindless masses who're buying Android phones - wouldn't that be a good thing? Especially in the long term?



    Squeezing out competitors by lowering costs is not Apple's business model.



    That was Acer's business model and earlier this year they admitted it was the wrong business model and that they weren't increasing shareholder value by shipping a bunch of cheap hardware.



    Apple eats cake and lets the competition fight over the crumbs.
  • Reply 7 of 49
    sflocalsflocal Posts: 6,092member
    Quote:
    Originally Posted by Sierrajeff View Post


    I know that it's the nature of a capitalist company to maximize profits, but -- since Apple is sitting on a hoard of cash, and apparently winning the handset profit race by a huge margin, why not slash prices on the iPhone line and really put the competition against the ropes?



    Again, I'm not saying Apple *shouldn't* make money where it can. But if it could slash iPhone prices, still make some profit, and - say - get RIM out of the game, or seize back a big chunk of the mindless masses who're buying Android phones - wouldn't that be a good thing? Especially in the long term?



    They don't need to. The success of the iPhone clearly points to them having the correct price point. They are not going to go trawling the bottom of the barrel to compete with Android. They don't have to, and I'm glad they are not doing that.



    They are using their hoard of cash to insulate themselves from economic shifts, and more importantly using it as a hedge to lock down component prices and buy companies / patents. They command 1st-shot of just about anything they want. They are in a fantastic position to be in.
  • Reply 8 of 49
    jhende7jhende7 Posts: 62member
    Quote:
    Originally Posted by Sierrajeff View Post


    I know that it's the nature of a capitalist company to maximize profits, but -- since Apple is sitting on a hoard of cash, and apparently winning the handset profit race by a huge margin, why not slash prices on the iPhone line and really put the competition against the ropes?



    Again, I'm not saying Apple *shouldn't* make money where it can. But if it could slash iPhone prices, still make some profit, and - say - get RIM out of the game, or seize back a big chunk of the mindless masses who're buying Android phones - wouldn't that be a good thing? Especially in the long term?



    Terrible idea. Akin to saying Maserati should make cheap cars to compete with ford or GM. Apple will never be a monopoly, even if they give there phones away for free for the next two years. So why dilute your earnings over a larger market share?



    Selling premium products for premium prices is Apple's value proposition to customers. When companies try to be all things to all people they are not long for this world.
  • Reply 9 of 49
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by Sierrajeff View Post


    Which is better - profits, or crushing competition?



    Easy! Profits.



    I wonder why you think Apple or any for-profit company would want o reduce their profits to simply have more share of a market.
  • Reply 10 of 49
    Someone asked me the other day how Apple was able to make such killer profits on their devices, when everyone else was racing to the bottom and losing margin.



    A couple of the points I brought up have already been touched on above - Apple leverages it's profitability to be able to subsidize manufacturing of its advanced parts under very attractive terms and conditions, which are then continued once exclusivity terms have been met, with preferred customer pricing of those same components as they are mainstreamed and available to the competition.



    And in addition to the cash insulator they have in their back pockets, they also have very conservative profit thresholds for their devices as well - requiring few devices sold before they turn a profit. By playing that conservative they see the huge profit margins now being reported based on fewer sales - so that when a device goes popular it generates a deeper profit delivery.



    It is the perfect model for being innovative - schedule your pricing around selling fewer items, so that you see profits earlier rather than later - even if the device only does modestly well (1st gen Apple TV) it returns some profit regardless, and use the profits to absorb any market softness.
  • Reply 11 of 49
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by fecklesstechguy View Post


    Someone asked me the other day how Apple was able to make such killer profits on their devices, when everyone else was racing to the bottom and losing margin.



    A couple of the points I brought up have already been touched on above - Apple leverages it's profitability to be able to subsidize manufacturing of its advanced parts under very attractive terms and conditions, which are then continued once exclusivity terms have been met, with preferred customer pricing of those same components as they are mainstreamed and available to the competition.



    And in addition to the cash insulator they have in their back pockets, they also have very conservative profit thresholds for their devices as well - requiring few devices sold before they turn a profit. By playing that conservative they see the huge profit margins now being reported based on fewer sales - so that when a device goes popular it generates a deeper profit delivery.



    It is the perfect model for being innovative - schedule your pricing around selling fewer items, so that you see profits earlier rather than later - even if the device only does modestly well (1st gen Apple TV) it returns some profit regardless, and use the profits to absorb any market softness.



    We can add to low R&D costs do to efficiency. We can see this in their correlation between OS X flavours Mac OS and iOS, and the use of the same basic HW across the iPhone, iPod Touch and iPad. All these things quickly bring them into the black so when you couple that with excessive unit sales you get an amazing profit margin even whilst being on par (or even cheaper) than the competition for a comparable product.
  • Reply 12 of 49
    ssls6ssls6 Posts: 49member
    I think the biggest reason is that a bunch of MBA's don't run the place.
  • Reply 13 of 49
    addicted44addicted44 Posts: 830member
    Quote:
    Originally Posted by Sierrajeff View Post


    I know that it's the nature of a capitalist company to maximize profits, but -- since Apple is sitting on a hoard of cash, and apparently winning the handset profit race by a huge margin, why not slash prices on the iPhone line and really put the competition against the ropes?



    Again, I'm not saying Apple *shouldn't* make money where it can. But if it could slash iPhone prices, still make some profit, and - say - get RIM out of the game, or seize back a big chunk of the mindless masses who're buying Android phones - wouldn't that be a good thing? Especially in the long term?



    I think Apple would do this, BUT, they can barely supply enough iPhones at the moment as is. It is really hard to imagine them being able to supply the massive demand for iPhones they will see if they drop prices. Once Apple has supply in order, I expect iPhone prices to drop.
  • Reply 14 of 49
    addaboxaddabox Posts: 12,665member
    Quote:
    Originally Posted by jhende7 View Post


    Terrible idea. Akin to saying Maserati should make cheap cars to compete with ford or GM. Apple will never be a monopoly, even if they give there phones away for free for the next two years. So why dilute your earnings over a larger market share?



    Selling premium products for premium prices is Apple's value proposition to customers. When companies try to be all things to all people they are not long for this world.



    Even allowing for the dread car analogy I think Maserati vs cheap GM cars is off the mark.



    Apple isn't making small market share exotica. They're not even making medium market share high end. They're making solidly competitive, beautifully engineered devices with best in the business user experiences which sells at mass market levels.



    It's like selling a Lexus for Honda money while declining to compete at all in the entry level hatchback market. All things being equal a lot of people are going to go for the relatively cheap Lexus, but that still leaves a lot of room to sell lots and lots of much cheaper Kias, because for a lot of people price comes first. That does not mean Apple is likely to build a Kia like model to try and pick up those customers.



    And of course the entire thing falls apart due to carrier subsidies, and I apologize for elaborating on a car analogy. Let's apply it to the iPad, which drives the whole cost structure even further down market while maintaining that sense of luxury quality and leaves very little room for entry level anything that doesn't fatally compromise key factors.
  • Reply 15 of 49
    addicted44addicted44 Posts: 830member
    Quote:
    Originally Posted by solipsism View Post


    We can add to low R&D costs do to efficiency. We can see this in their correlation between OS X flavours Mac OS and iOS, and the use of the same basic HW across the iPhone, iPod Touch and iPad. All these things quickly bring them into the black so when you couple that with excessive unit sales you get an amazing profit margin even whilst being on par (or even cheaper) than the competition for a comparable product.



    AppleTV2 is a perfect example of this. It is nothing but an iPod touch without a display, and a bunch of other unneeded sensors, and components. Barely any R&D required (a little to get a new UI, and a new enclosure) and also gives them pricing power, since they are now buying more of the same chips.
  • Reply 16 of 49
    anantksundaramanantksundaram Posts: 20,403member
    Quote:
    Originally Posted by ssls6 View Post


    I think the biggest reason is that a bunch of MBA's don't run the place.



    Cook has an MBA from Duke University.



    And, Ron Johnson (the about-to-depart retail store genius) an MBA from Harvard, and Peter Oppemheimer from Univ of Santa Clara.
  • Reply 17 of 49
    anantksundaramanantksundaram Posts: 20,403member
    But.... but.... Android has a bigger market share....!



    /sarcasm
  • Reply 18 of 49
    joshajosha Posts: 901member
    Quote:
    Originally Posted by Sierrajeff View Post


    I know that it's the nature of a capitalist company to maximize profits, but -- since Apple is sitting on a hoard of cash, and apparently winning the handset profit race by a huge margin, why not slash prices on the iPhone line and really put the competition against the ropes?



    Again, I'm not saying Apple *shouldn't* make money where it can. But if it could slash iPhone prices, still make some profit, and - say - get RIM out of the game, or seize back a big chunk of the mindless masses who're buying Android phones - wouldn't that be a good thing? Especially in the long term?



    What you suggest would only make sense if Apple's iPhone was much more expensive than the equivalent competition and Apple's sales volume was low.

    In fact the iPhone is only a modest amount more expensive than the equivalent others. I would expect the carriers would still retain a difference in price, because Apple already has enough control of the smart phone market. The usage cost of smart phones, which is the same, covers most of the phone's cost.

    As for Rim, not nice to hit them when they are down and still dropping. They did it to themselves by not keeping up to date and then coming out with a confusing mix of BB models.
  • Reply 19 of 49
    island hermitisland hermit Posts: 6,217member
    Quote:
    Originally Posted by anantksundaram View Post


    Cook has an MBA from Duke University.



    And, Ron Johnson (the about-to-depart retail store genius) an MBA from Harvard, and Peter Oppemheimer from Univ of Santa Clara.



    ... and Steve Jobs from the School of Hard Knocks...
  • Reply 20 of 49
    inkswampinkswamp Posts: 337member
    Quote:
    Originally Posted by anantksundaram View Post


    Cook has an MBA from Duke University.



    And, Ron Johnson (the about-to-depart retail store genius) an MBA from Harvard, and Peter Oppemheimer from Univ of Santa Clara.



    And Gil Amelio has a bachelors, masters, and PhD in physics from the Georgia Institute of Technology.



    That sound? Me sinking your battleship.
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