Apple Takes 104% Of Q3 2016 Smartphone Profits

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Global smartphone sales figures for Q3 of 2016 were recently released showing that Apple had conceded market share to Android. They also shows that other platforms – such as Samsung' Tizen, Microsoft's Windows Phone and BlackBerry's own OS – dropped to almost zero. The world's current smartphones are almost all running either a variant of Google's Android or Apple's iOS platforms. Indeed, almost nine in ten devices sold in the third quarter ran a variant of the Android platform, however simply selling a large number of devices is absolutely no guarantee of making any money from them. Competition is extremely intense between different manufacturers and we have seen an influx of relatively new device manufacturers, the majority being Chinese, offering equivalent devices to the better known brands at significantly lower prices. As these products mature and start to find their way into the developed markets, so the bigger players are starting to take notice. This is causing prices to weaken: if not in cash terms, manufacturers are having to offer more bang for buck, especially in the mid-range market.

Whilst Android has the majority of the market, and even considering the competition within the industry, it might still be surprising to learn that Apple's estimated profits for the quarter are running at 103.6 percent, according to Tim Long, analyst at BMO Capital Markets. Apple's iPhone family provide the parent business with a very rich profit stream despite the massive marketing budget and investment into new chipsets. The reason why Apple commands a greater than 100% share of the profits is because many competitor manufacturers generated an operating loss, such as LG and HTC. In the past we've seen Samsung generate significant profits from device sales but for the third quarter, this figure shrank to just 0.9 percent. Clearly, the Galaxy Note 7 exploding battery issue, recall and subsequent removal from sale is to blame for this. During Q3 2016, Samsung's device market share stood at close to 22% followed by Apple, a shade over 13% and followed by Huawei, a little under 10%.

Long also stated that he believes smartphone shipment growth will be a modest industry-wide 2.6 percent annually by 2019, but that growth will be driven by the emerging markets, where he cites an expected growth of around 4 percent. However, Long's prediction is that developed smartphone market sales will decline by around 1 percent year-on-year and this is likely to temporarily increase competition in these markets. Ultimately, few businesses have the resources to continue to offer smartphones where they lose money for every device sold. We may see a change in the main brands offering smartphones in the coming months.

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