iPhone Claims 32 Percent of Handset Industry Operating Profits
by John Paczkowski
Posted on August 4, 2009 at 3:01 PM PT
With the iPhone, Apple is doing to the handset industry what it has done to the PC industry with the Mac: Claiming an inordinate share of profits relative to revenue.
Bernstein Research analyst Toni Sacconaghi estimates that Apple (AAPL), though it is only the fifth-largest handset vendor, claimed nearly a third of handset industry profits in the first half of 2009 (see table below; click to enlarge).
“Our analysis indicates that Apple’s iPhone accounted for only 8% of handset industry revenues but 32% of industry operating profits in 1H09,” Sacconaghi wrote in a note to clients today. “Even if we exclude the operating losses generated by Motorola and Sony Ericsson, Apple still accounted for 25% of industry profits. iPhone’s success is akin to Apple’s position in the PC industry–where the company enjoys an estimated 25% of industry profits, despite capturing only 6% of industry revenues.”
Quite an achievement considering that the iPhone is just two years old. How did Apple manage it? According to Sacconaghi, Apple succeeded by claiming a first-mover advantage in an expanding high-end market.
“With the iPhone and its Apps Store, Apple has established a formidable smartphone ecosystem, which history suggests is very difficult to overcome,” the analyst explains. “In fact, Apple has the potential to become a de-facto standard of sorts in the consumer smartphone market, much like it became in the portable media player market with iPods, due in large part to its first mover advantage and tight software and hardware integration.
“We believe that over time,” Sacconaghi continues, “single function standalone handheld devices (portable music players, digital cameras, navigation systems, etc.) will become increasingly converged. Apple’s estimated installed base of 75+ million individual iPod and iTunes users provides customers with a seamless migration path to a fuller featured, higher-end integrated device.”
Though Sacconaghi believes Apple should be able to grow faster than the overall handset market without materially lowering prices, he suggests a lower price point might give a signifigant bump to its iPhone business. “We believe Apple will ultimately need to lower price (and margins over time) to expand its addressable market opportunity, including offering a lower-cost, non-data plan iPhone,” he concludes.
Comments
If A is true
““With the iPhone and its Apps Store, Apple has established a formidable smartphone ecosystem, which history suggests is very difficult to overcome,””
then why would you do B?
“…Apple will…need to lower price…to expand its…market”
Just once I want to see an “analyst” write: “Apple should increase its prices to make even greater profits”.
It is all about price elasticity.
Posted by Dave Barnes at August 4th, 2009 at 8:18 pmNo fanboi here, but it is good to see Apple once again to demonstrate what absolutely worthless dullards are running the competition.
If Jobs is the corporate persona for Apple, Dilbert must be the corporate persona for all the rest.
Posted by Mac Beach at August 4th, 2009 at 9:07 pmWhen purs concepts are becoming alive , no wonder , anything can happen, as is the case of Apple, innovation is the key.
Posted by JOHN JOSEPH at August 5th, 2009 at 2:47 amToo much is made of the data plan cost. When I got an iPhone and added a data plan, my monthly phone bill went down, not up. The reason is that I don’t use AT&T long distance at all now that I can place almost-free Skype or Truphone calls over Wi-Fi, and I don’t make as many calls period now that I have email and text and maps to look up directions and so on. My AT&T bill is always, always the minimum.
So the data plan — which is what makes a phone a smart phone — can easily pay for itself.
Posted by Fred Hamranhansenhansen at August 6th, 2009 at 3:24 pmWhile Apple is taking 32% of the profit, RIMM is taking the next 22%.
The two companies take 54% of the profits whilst only having 18% of the revenue.
Ouch.
It is not just Apple that is eating the others’ lunches.
Posted by Dave Barnes at October 22nd, 2009 at 1:30 pm