Vishal Saini, Canaccord Genuity’s Apple Inc. Share Market analyst, estimates how much the major smartphone providers generate in profits, which I believe is more critical to which of them will thrive in the long-term. Unit market share is important as a company needs to sell enough to cover its fixed costs such as research and development. However if it isn’t making any money at some point in time it should exit the market unless there are ancillary businesses that their smartphones are supporting.
Importance of iPhone in Apple Inc. Share Market
Apple Inc. Share Market : Apple Inc.’s worldwide iPhone unit market share has held fairly steady in the low to mid-teens since 2013 and maybe even earlier. However its profit share of smartphone market has been much higher. Walkley estimates starting in 2013 are:
- 2013: 61.99%
- 2014: 76.99%
- 2015: 89.99% (iPhone 6 and iPhone 6 Plus were launched in September 2014)
- 2016: 82.99%
- 2017 1st quarter: 83.01%
As can be seen from the % above Apple captured almost all the industry’s smartphone profits in 2015 and while it has fallen some it still generates most of them.
While past performance is not necessarily indicative of future results Apple Inc. has done a very good job of maintaining strong gross margins. With a very loyal user base and a high value/high price strategy I don’t see its profit leading position eroding very much.
Samsung has typically been in 2nd place but it has seen its smartphone profits fall over the same time-frame. Its profit % has been in the low to mid-teens since 2015.
Huawei is in 3rd place. After breaking even in 2013 to 2015 it is now eking out 4.99% of industry profits.
Walkley estimates that Lenovo, Microsoft, LG, HTC and Sony are essentially at breakeven. While these are large companies that can support losses or continue to tread water on their smartphones at some point in time they will have to face the hard decision of exiting or investing even more.
While Walkley’s profit analysis does not include companies such as Xiaomi, OPPO, ZTE & Vivo these companies use Android, which essentially means that they and the other Android platform companies will continue to knock the stuffing out of each other. Xiaomi has lost traction the past few years so it would not surprise me to see an ebb and flow of other major Chinese smartphone manufacturers.
Additionally I believe it will be very hard for most if not all of these companies to gain any traction in the US market. Since it is the most lucrative one (at least from a profit perspective) their impact on Apple Inc. Share Market in the US should be minimal at best.