Apple and RIM: The Spoils Go to the Smartest

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 (NOK) 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 (AAPL) 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 (RIMM) 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 percent 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 (MOT) and Palm (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).

Original post

Comments

[JamesApple:]

iPhone is a very small proportion of the overall Apple portfolio. In time iPhone would become the universal mobile device of choice globally, iPhone provides always online availability, as well as offhost processing capabilities, similar to the Tandem, IBM 4700, AS400 architectures. In time the 'phone' part of iPhone would morph into functions providing much natural UI capability, and the iPhone itself becoming more an extension of the person than what we call a smartphone in today's technological confines.

Live and think out of the box.

Jun 01 01:31 PM

[JamesApple:]

#%#{* AT&T

Jun 01 01:36 PM

[Ricard:]

There's something totally wrong with the numbers here. According to the first chart, the entire cellphone industry made less than $20 mil as a whole during each of the past four years. No idea what units the second chart is using. The third chart defines the cellphone industry as a $100 mil market. Suggest either updating the charts or throwing them out a window.

Jun 01 01:44 PM

[Almoney100:]

That is true if you are using the total number of Sales for Apple that wouldn't be the total revenue gained from the IPhone sales. I would say though that it doesn't look like from the chart that IPhone made just over 4.5bn seeing that it's marked in USD, 000's (by adding three more zeros makes millions) Plus if your going to read the chart wrong then complain about the numbers that least offer a solution to find the write numbers. Check out images.apple.com/pr/pd... from Apples website. Unit sales of iPhone 3G continued to be significant in the quarter ended December 27, 2008, with 4.4 million iPhones sold.

On Jun 01 12:32 PM Economyst wrote:

> 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.

Jun 01 01:49 PM

[JamesApple:]

Rim makes and sells junky hardware.

Jun 01 01:51 PM

[Almoney100:]

I agree with Ricard here seeing that the whole cell phone industry was over 300 million for fiscal year 2008. I think maybe to many variables are being factored in to this equation which is causing the confusion. Chart two I think is talking about the total number of units sold by each company, but that is hard to tell. I know Nokia had about 37-38% market share at the end of 4th quarter 2008. Charts could to a little clearer. Thanks for sharing thought! Food for thought.

The global economic downturn had a significant impact on the mobile phone industry as worldwide mobile phone sales to end users totalled 314.7 million units in the fourth quarter of 2008, a 4.6 per cent decline from the fourth quarter of 2007, according to Gartner. Manufacturers continued to struggle against low consumer confidence in both emerging and mature markets.




On Jun 01 01:44 PM Ricard wrote:

> There's something totally wrong with the numbers here. According
> to the first chart, the entire cellphone industry made less than
> $20 mil as a whole during each of the past four years. No idea what
> units the second chart is using. The third chart defines the cellphone
> industry as a $100 mil market. Suggest either updating the charts
> or throwing them out a window.

Jun 01 02:02 PM

[EJL:]

This simply is not true. The future prediction is an opinion, of which we all know are like a$$holes, as everyone's got one and they all stink. however, the current trends contradict your statement.


On Jun 01 01:06 PM JamesApple wrote:

> The way things are now, Palm, Apple, HTC and Nokia are dividing up
> the Rim smartphone shares well into 2011. Rim subscribers will convert
> to Palm, Apple, HTC and Nokia smartphones.

Jun 01 02:05 PM

[Techtrader10:]

I agree with "economyst", this article is very flawed. The information is not accurate, and seems to be self serving...

Jun 01 02:09 PM

[Channon:]

Economyst: AAPL defers iPhone revenue over 8 quarters. An iPhone sold in Oct 2008 was only 1/8th recognized in Q4 08. July 08, only 1/4th recognized, etc.

The bloggers have been pointing this out for years. Morgan Stanley just noticed, and quite hilariously, after having told their clients to sell at $80, just decided to tell them to buy at $135. Having missed $55 in gains, they think there is another $45 in upside. Perhaps that means it's time to sell...

Jun 01 02:21 PM

[EJL:]

please make time as your posts are lacking in facts. i'm not convinced a one year consulting gig provides any credence given your history of one pro-apple rant after another. it would be nice to have a fact filled discussion instead of comments like this: "Rim makes and sells junky hardware."


On Jun 01 01:12 PM JamesApple wrote:

> I would elaborate more when I have time.
>
> I worked at Rim for almost a year in one of my consulting contracts.
>
>
> All of BES's features can be incorporated in the OS.
>
> CERN is one of the most avid clients for mobile infrastructure deployment,
> it already has a strategic project in MI.

Jun 01 02:23 PM

[aja8888:]

Us business guys and gals prefer the RIMM products because of their ability to manage e-mail. Most professionals rely on e-mail versus text messaging. The I-Phone is trendy and my granddaughter has one, but her game is texting.

Our entire office is using Blackberrys and will continue to use them.

Jun 01 02:37 PM

[Roger Knights:]

Economyst wrote:
"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."

That's probably because Apple uses GAAP accounting and spreads profits from the iPhone over 8 quarters.

Jun 01 04:10 PM

[JamesApple:]

if you take a year to weed out faulty products and companies then how long does it take? 5? 20?

eMails ahould not run businesses, processes do, otherwise the businesses end up running like a email, random and incomplete, dangerous and highly disorganized.

Jun 01 05:45 PM

[Economyst:]

Deferred Revenue is not deferred profit. The First grapgh Fig 3 is about profit not deferred revenue.
GAAP does not provide the answer. They have a sale today of an Iphone at the end of year they account for half of it. At the end of year 2 they account for al of it.
The graph even if we take it as it is says $4.5m profit for Apple from the Iphone for 2008 - assume its deferred and assume 1/2 is still left to account for even if you double that figure to $9m its still wrong.

I then thought perhaps the Analyst has meant millions and not thousands (legend in the graph) but it still does not make any sense. Then the figures would be $4.5bn profit from Apple Iphone for 08 - is still wrong.

Jun 01 07:17 PM

[Wisdom vs. ...:]

T is building out their network as fast as they can and it is barely profitable. at the price you are paying for bandwidth, that is the best service you are going to get. your VZ iphone will be a little better, but that is b/c it is on a new, more efficient network, the likes of which T will also offer-- and, all service providers are planning to charge more for unlimited bandwidth. you guys are hurting T's reputation because you are universally ignorant of economics; that is bad for you, me, and everyone

Jun 01 08:00 PM

[JamesApple:]

Rim runs its business ruthlessly, not smartly.

Apple runs it business smartly, not ruthlessly.

Jun 02 01:11 AM

[Economyst:]

James - thats's meaningless - you care to elaborate?

Jun 02 05:27 AM

[brewer:]

When/if Apple goes multi-carrier, things will get very tough for all the other vendors, chasing it's tail.

People want more from a supposed 'smartphone' than phone and email. They want the ENTIRE internet and a robust application platform that is drop dead easy to deal with. (To clarify for you "business guys and gals", this is iPhone.) Then there is also the media infrastructure, music, podcasts, movies, TV, etc... in which Apple is light years ahead.

You think Huberty is a business gal? I think so.

Jun 02 09:02 AM

[Ricard:]

I do not follow the cellphone market. I have no investments related to it, although I used to. However, even with my lack of familiarity, I can recognize how this article is completely distorting the size of this market, for what reason I do not know, nor do I care to know.

Here's Wikipedia's opening paragraph on Nokia:

Nokia Corporation (pronounced [ˈnɔkiɑ] in Finnish) (OMX: NOK1V, NYSE: NOK, FWB: NOA3) is a Finnish multinational communications corporation that is headquartered in Keilaniemi, Espoo, a city neighbouring Finland's capital Helsinki.[4] Nokia is focused on wireless and wired telecommunications, with 128,445 employees in 120 countries, sales in more than 150 countries and global annual revenue of EUR 50.7 billion and operating profit of 5.0 billion as of 2008.[1][2] It is the world's largest manufacturer of mobile telephones: its global device market share was about 37% in Q1 2009, down from 39% in Q1 2008 and unchanged from Q4 2008.[3] Nokia produces mobile phones for every major market segment and protocol, including GSM, CDMA, and W-CDMA (UMTS). Nokia's subsidiary Nokia Siemens Networks produces telecommunications network equipment, solutions and services. Navteq is part of Nokia's strategy of focusing on mobile navigation.[5]

50 billion euros in annual revenue. Now look again at the first chart of this 'article'. Even if the US market only accounted for only 1% of Nokia's revenue (which it doesn't - it accounts for a lot more), you'd get something closer to one billion, not 20 million, for Nokia ALONE.

Really...the quality of this article is shameful.

On Jun 01 02:02 PM Almoney100 wrote:

> I agree with Ricard here seeing that the whole cell phone industry
> was over 300 million for fiscal year 2008.

Jun 05 11:33 PM

[Ricard:]

I just noticed that this is a SA 'editor's pick' as well. Wow.

Jun 05 11:35 PM