Daniel Eran Dilger
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Report: iPhone grabs 32% of global handset profits

Prince McLean, AppleInsider

Apple’s iPhone now accounts for 8% of all mobile phone revenue and a whopping 32% of the industry’s handset profits, according to figures published by Bernstein Research analyst Toni Sacconaghi

Report: iPhone grabs 32% of global handset profits
The numbers, published by All Things Digital blogger John Paczkowski, aren’t limited just to the smartphone segment market, but look at all mobile phones sold in the first half of 2009, a $65.7 billion industry.

Apple earned just over $5 billion in the first half of the year, making it the fifth biggest player in terms of revenue, behind Nokia, Samsung, RIM, and LG. Apple lead the world in actually making money however, with just over $2 billion in operating profits. The company earned just over $100 million more than second place Nokia, gobbling up a 32% share of the global profits made in handset sales and achieving operating margins of 40%.

Because these numbers reflect the first two quarters of 2009, they only take into consideration less than two weeks of the surge in sales generated by the new iPhone 3GS. Historically, the first half of the year has been the slowest for Apple’s mobile sales as buyers begin to anticipate the next refresh.

In terms of operating margins, second place RIM earned closer to 20%, while Nokia, Samsung, and LG made closer to 10% margins. Sony Ericsson and Motorola continued to actually lose money in their handset sales, with the former losing $841 million and the latter loosing $762 million.

Ignoring the losses of Sony Ericsson and Motorola, but still considering their $8 billion in sales, Apple’s 8% share of the industry’s revenue still accounts for 25% of the world’s profits earned from phone sales.

The numbers vindicate Apple’s strategy of exclusively selling smartphones, rather than trying to soak up unit market share by marketing huge volumes of many models of low profit ‘feature phones.’ Nokia, the leader in phone sales worldwide, has watched its market share evaporate under competition from Apple and RIM by doing just the opposite.

Apple’s smartphone business is structured similar to the company’s approach to selling computers, where it owns a disproportionally large segment of the premium market. As with feature phones, Apple has largely ignored low profit PC segments such as high volume but low priced $400 desktops.

  • truthseeker

    Great word choice “feature phones!” The words jumped out at me when reading your article. It makes perfect sense that they are low profit: “feature phone” is just an euphemism for “cheap, disposable piece-of-crap.” When consumers won’t buy them give it to them “for free” when they indenture themselves to a service contract! I’m glad to read elsewhere on this site that cellular companies will probably be reduced to datastream vendors: I’m sick of their games and “value-added” crap like text messaging that costs them nothing so really ought to be free.

  • ounkeo

    First off, Feature Phones aren’t pieces of crap. They serve a market. There’s no ONE phone that serves ALL markets. The problem with US based analysis over such issues is isolationism and our Serf/Lord relationship with NA carriers who do all kinds of things to the phones in their inventory. This is largely untrue in more advanced mobile countries and so feature phones are good phones for the market they serve.

    And in response to the article. I think that’s great for apple, but we have to remember several important factors here:

    -Apple is earning a portion of all earnings from the carrier.
    -Their phones are also already “paid for” after coming off production to the carriers. Compare that with other phone vendors outside of the USA who generally have to market and sell their own devices. It’s not hard to figure out that Apple is making easy money off of the iPhone.

    Those points are important because in the market general (world), the trend is for device makers to market and sell their own phones or have a hybrid system of subsidies/self marketing. The current system used by Apple was something that happened in the very early years of the mobile industry and luckily for the rest of the world, they’ve largely advanced beyond that now, giving overseas users far more control over their choices as well as their spending patterns that fit their lifestyle/spending habits.

    In NA, you pay what the carriers tell you and in a subsidies game, the phone that gets subsidised will gain market penetration so it completely skews the numbers.

    Does this diminish apple’s achievements? No, but one can’t look at those numbers and believe them to be anything more than numbers that only work for them in a largely backward system, especially once carriers start losing their power, like has happened in the rest of the world.

    At the moment, apple is selling (last I read) 75% to the installed NA apple market and of the remaining 25%, 30% of global sales are to installed apple users. The trick is to see if they can sell outside their installed base in a consistent manner and do so in the same kind of environment as other device makers who are solely responsible for their own global marketing. So far, the numbers are good as long as we read it with the caveat that much of that profit is from an installed base who will pay regardless and much of that profits is also from a carrier/device maker system that is archaic and generally not accepted in the more mature markets outside the USA.

    [Thanks for the comments. If you can, please submit the source for the idea that the iPhone is primarily only selling to Apple’s installed base. Does this mean to people who have heard of or have the iPod? Because the iPod already proved Apple could sell outside its installed base. Most iTunes/iPod users are not Mac users, and the installed base of iPods is so vast it is dramatically boosting Mac sales. iPhones are doing something similar. To expect iPhones to dramatically outsell the iPod in their third year may be somewhat overreaching however. Dan]

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