Apple’s ability to net a large portion of the industry profits combined with its high retention rate positions the company to maintain a high level of sales and profits. Apple will be able to fund its research and development efforts and support its App ecosystem to maintain its leading position. The virtuous cycle of making the most money allows it to sell more iPhones, which increases its install base, which generates more revenue and profits and the cycle continues.

Michael Walkley, Canaccord Genuity’s Apple analyst, estimates what percentage of profits most of the major smartphone vendors generate. He calculates that while Apple’s percentage of profits has fallen from 100% in the September 2016 quarter (when Samsung had its Galaxy Note 7 recall) to 72% in the just recently ended September 2017 quarter it is still three times the 24% that Samsung captured. Here are the key metrics from his analysis:

Apple’s profit share has fallen but still dominates

• 2014 profit share was 77% vs. revenue share of 42%

• 2015 profit share was 90% vs. revenue share of 51%

• 2016 profit share was 83% vs. revenue share of 50%

• 2017’s quarterly profit share has been 84%, 68% and 72%, respectively

• 2017’s quarterly revenue share has been 51%, 38% and 42%, respectively

Samsung’s profit share has rebounded

• 2014 profit share was 27% vs. revenue share of 34%

• 2015 profit share was 16% vs. revenue share of 27%

• 2016 profit share was 18% vs. revenue share of 29%

• 2017’s quarterly profit share has been 15%, 25% and 24%, respectively

• 2017’s quarterly revenue share has been 29%, 37% and 35%, respectively

Huawei is the only other profitable smartphone OEM

• 2014 profit share was 0% vs. revenue share of 4%

• 2015 profit share was 0% vs. revenue share of 7%

• 2016 profit share was 5% vs. revenue share of 9%

• 2017’s quarterly profit share has been 5%, 8% and 7%, respectively

• 2017’s quarterly revenue share has been 10%, 15% and 12%, respectively

Walkley’s analysis does exclude some Chinese OEM smartphone providers such as Vivo and OPPO since they don’t provide financial information but he believes that in total they are around breakeven so including them wouldn’t change Apple and Samsung shares by much if any.

Walkley and I believe that there will have to be consolidation among vendors, especially ones in China. This reminds me of the early PC market where multiple OEM’s sprung up hoping to get 5% to 10% of the market but since there were dozens of them the math didn’t work. This could very well be the same with the smartphone companies.

Source: Forbes