When you look at sales of the iPhone or Blackberry as a percentage of total cell phone sales, they are still a tiny smidgen of the one billion phones estimated to be sold this year. But when you look at what really matters—their share of revenues or operating profits—the picture looks a lot different. Deutsche Bank analyst Brian Modoff calculated the share of operating profits going to each major mobile handset manufacturer and came up with the eye-opening chart above. It shows Apple (pink) and RIM (turquoise) increasingly taking a disproportionate share of industry profits, mostly at the expense of Nokia’s diminishing handset operating profits (blue).
In a note, Modoff writes: “Increasingly, the smartphone vendors are claiming more of the industry’s profit dollars even as the pool of profitability stabilizes or shrinks.” Thanks to the success of the highly-profitable iPhone, Apple’s share of industry operating profits went from 3 percent in 2007 to 20 percent in 2008 and will grow again to an estimated 31 percent in 2009. RIM, maker of the Blackberry, is doing even better, increasing its estimated share of industry profits from 8 percent (2007) to 19 percent (2008) to 35 percent (2009). So adding those two together, Apple and RIM are expected to account for an incredible 66 percent of industry profits this year.
Meanwhile, once-dominant Nokia is seeing its estimated share of industry profits drop from 64 percent (2007) to 57 percent (2008) to 32 percent (2009). The only other major manufacturer to grow its profit share is Samsung, from 14 prcent last year to an estimated 19 percent this year. (A note on methodology: These numbers take into account operating losses at companies such as Motorola and Palm, and the total adds up to 100 only when you subtract their losses, which are expressed as negative percentages).
Such a massive shift in control of industry profits is unprecedented and speaks to the growing value of software in the cell phone industry. It also speaks to the missteps of the traditional handset manufacturers (only Samsung seems to have its act together) and the end of unbridled growth for the industry. Modoff expects total unit sales to decline slightly this year back down to one billion, while industry revenues will continue to come down from their 2007 peak. Nevertheless, Apple and RIM, will continue to take share in both units and revenues as the rest of the industry struggles (see charts below).
And I think this would continue unless Nokia comes out with some ground breaking phone! I’m happy with the way telecom industry is moving esp. mobile market.
here’s proof that apple overprices their phones.
No, here’s proof that Apple knows how to make money off of every aspect of the iPhone–hardware, software, peripheral market, retail (Apple stores) and a cut of the subscriptions from the telcos. Not to mention extra music, movie and TV show sales.
NO ONE else has figured out how to do this even though many “smartphones” are just as expensive as the iPhone.
So this is a profit / revenue number?
Modoff sounds awfully like Madoff to me – can we trust this ‘analyst’? =)
What methodology was used to calculate these estimates?
I am lost. Does the first chart mean that all manufacturers combined have achieved some 18m USD profit in 2008? How is that remotely possible?
The mystery repeats itself in the two charts further below. What is the scale on the handset unit share graph?
Even stranger: I find it hard to believe that the entire industry has has 2008 revenue of 120m USD…
Can you have a look at the labeling of the axis?
Good eye for detail Jens.
It’s the data plans.
Five to ten years back these guys (rim and apple) just entered These Markets
wow.
So that’s good news to all entrepreneurs!!
Why not entering sature markets..
During the iPhone’s introduction, Jobs claimed that the iPhone leaped 3 to 4 years ahead of the industry, an astonishing boast to make as freshly minted initiate in the fast moving and matured mobile industry.
Two years later, others are still struggling to adjust to the new model.
Apple’s iPhone execution will undoubtedly be studied in business schools as a case study for years to come.
You are so correct about the execution – flawless. Apple’s innovation and team is second to none. Just hope that they don’t get complacent. It will be interesting to see what transpires over the course of the summer with Apple, RIM and Palm.
Apple did rip open the industry. Awesome, great. Android now has a chance to really open it up. And all the spoils will not go to a single company.
The problem with the “new model” that Apple created is that the business side is way too closed to engender true growth.
Having thought briefly about it, I think all three charts should be labelled in billions. USD billions of profit, billions of units, and USD billions of revenue.
Hopefully iphones come out with a physical keyboard. I think that would help apple’s numbers.
I second that. A Blackberry Curve form factor with Apple OS on it would be the ticket.
Physical keyboard’s dead. Even Blackberry and Google’s Android is moving away from it.
Agree – there are lots of great apps for the iPhone but here’s the one that’s missing: the one that turns it into a Blackberry.
Physical keyboard ftw.
I bet I can type faster on my BB than you will ever be able to on your iphone.
Till then, the enterprise will not take the Iphone, it’s not user friendly for the basic of tasks, typing.
I bet people with regular phones could type faster with 1 thumb and more accurately than most people on an Iphone.
This is impressive, Apple and Research in Motion clearly are on top of their game, and sit at the top of the industry. I think Apple would continue their gains after the contract with AT&T runs out if they open it up to Verizon or Sprint users.
Eric: many thanks. This is the kind of TC article I would prefer to see more of. With regard to the data, I’ll have to respect the fact that Brian Modoff is from Deutsche Bank and has more insight into the data then I might have. But to really feel confident in the conclusion I would have to know more about the method behind the analysis.
Best Regards,
Scott Charles
This is poor analysis. Assume it should be billions then from chart it looks like the iphone made just over $4.5bn profit for Apple. Now looking at Apple total profit from 2008 its $4.834bn so this analyst has attributed all of Apples profit for 2008 to the Iphone.
Eric I suggest you check your data before you post another pro Apple article – you’re falling over yourself in love with Apple – a bit of thought might not go amiss.
while I didn’t check, I assume youa referring to the net income of apple, where the chart above is gross income. (rev- COGS)
i think the use of gross income by BU or segemnt make sense, it makes it harder to break out corporate overhead of apple or other non-pure cell phone makers (e.g. samsung, LG)
I’m afraid ‘operating profit’ is for whole company of Apple Inc, since they did not announce iPhone related figures individually.
Then, where he got ‘handset revenue’ ? If it is 6.6 billion, average unit price comes to about US$500, seems close to real, though.
Where is HTC? They aren’t even listed. How can you leave out such a large segment of the market?
You can’t. This ’study’ and these charts are worthless.
HTC is a third rate maker of knockoffs and cheap handsets. They’re irrelevant.
pretty tough words coming from a 2nd derivative knockoff of Steve Martin
You confirm someone else’s thesis that people with twitter in profiles are morons.
hahaha!
Love Nokia, and will continue to use their phones, but they really need to stop producing so many handset variants and focus their efforts on a handful of innovative handsets. I fear they might have the same fate as General Motors unless they get their act together.
Producing touch phones is great, but with Resistive technology? Come on, even Samsung and HTC are using Capacitive.
this is a great article!
Nokia focus has been on manufacturing – they produce 400 million phones per year. They have become too internally focused on producing standardised products to increase production efficiency this has led to them developing similar looking phones as they use the same manufacturing techniques, internals components etc.
Just as the Auto Industry took the approach of having platforms that could produce N derivates from the same platform Nokia has gone the same route. It’s no surprise that the car maker with the highest margins is Porsche – just like the Iphone it tweaks it design each year to sell its cars.
What should Nokia do – well less is definitely more. Produce less variants and concentrate on developing a service backend and software.
It would be interesting to know not just what Apple made from the iPhone but also, collectively, what the ‘wealth effect’ of the iPhone ecosystem has been on 3rd party ISVs, accessory manufacturers, etc. and compare that to the revenues generated for 3rd parties from all other platforms/best-selling handsets.
This is racist !!
Rim seems to be taking most of the profits somehow, since RIM’s share price continues to climb faster no matter what Apple puts on the table. I might have something to do with Canadian vs American currency or something.
For some reason, you’d think a company that had a huge cash reserve would pull more investors or even the fact that Apple has more diversified products or a far greater number of retail stores that investors would pour far more money into Apple. Yet even throughout the recession RIM is pulling in money faster than Apple. I’ll bet even the new iPhone and iPhone China sales will cause RIM’s share price to climb ever higher on the conclusion that if Apple can sell a quantity of smartphones, RIM can sell even more. I think RIM’s profit margins are even higher than Apple’s. RIM seems to be growing faster despite not even having anything like iTMS or a 40,000 app App Store and just one retail store. That’s pretty amazing. Maybe it’s just better to have a corporate presence rather than a game presence.