Feature Article

November 15, 2013

Apple and Samsung Earn All Smartphone Profits, Again

With the exception of Apple and Samsung (and with the caveat that data for Huawei, Lenovo, ZTE, and Coolpad were not available), no mobile handset suppliers are making money, a study by Canaccord Genuity has found.

 Apple and Samsung earned 109 percent of third quarter 2013 mobile phone profits, according to Canaccord Genuity analyst Mike Walkley. Apple earned 56 percent of profits while Samsung earned 53 percent of profits (the figures include the impact of losses by other suppliers)

Other manufacturers such as BlackBerry, Nokia, LG, HTC and Motorola lost money, Walkley said.

 How long that situation can continue is the issue, and what it might mean, is the issue.

 A supplier presently losing money can hope to move into positive territory, or can sustain losses long term if there is another revenue model

 Motorola could, in principle, continue to lose money as part of a Google strategy to drive down the price of handsets globally. Others, such as Amazon, might eventually decide to produce its own phones, essentially breaking even, to support its commerce or content sales revenue model.

 Some suppliers might be willing to tolerate modest losses long term if phone sales contribute to sales of other products, such as tablets or PCs.

 But most suppliers will have to become profitable or exit the market, medium term. Right now, that appears to be a challenge.

 Consider BlackBerry, which has sales to consumers that may be down as much as 50 percent year over year, leaving BlackBerry with 1.4 percent smart phone market share, down from 4.2 percent in the third quarter of 2012 and down 15 percent from the third quarter of 2010.

 Canaccord Genuity predicts that BlackBerry eventually will be broken up, not sold. “We now believe a breakup is more likely than an outright sale and fundamentals will continue to deteriorate over a now longer public sale process under new management,” Canaccord Genuity argues.

 There are implications beyond the fortunes of device suppliers.

 At some point, it is possible that innovation could slow, either because there are fewer suppliers, or the remaining suppliers intentionally sacrifice innovation to cut retail costs.

 In turn, that could affect mobile service supplier revenue, in complex ways. Since mobile service providers are the actual buyers of most smart phones, which are resold to consumers, it matters whether most surviving suppliers can reach profitability and produce compelling new devices at lower costs, allowing mobile service providers to sell more devices, to more people.

Edited by Cassandra Tucker

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