With the global smartphone market now close to peaking, it’s clear to see who the winners and losers are in this closely-fought segment.
By Zeid Nasser
After years of battle, some tech watchers have declared the smartphone wars over. The segment is now effectively a duo-polyshared by Google and Apple, and will remain so for the foreseeable future. But as the adjacent graph by Statista shows, perhaps a more accurate description would be to say the smartphone OS wars are over,with Google’s Android having gobbled up around 85 percent of the market, and the rest taken up by Apple’s iOS.
But it’s not strictly a case of sales volume. If this battle is viewed from a profitability perspective, then Apple is triumphant. Figures from the market research firm Canaccord Genuity for the second quarter of 2016, show that Apple and Samsung accounted for $12.9 billion in smartphone operating income. This total is actually more than 100 percent of the total industry’s operating profit of $12.27 billion, because other major vendors including Microsoft and Lenovo posted losses in the category generating a negative effect on the calculation.
Apple accounted for a whopping percentage of close to 90 percent of the total operating profits. In distant second place was Samsung, with around 9 to 10 percent, with all other notable manufacturers either losing money or under one percent of total profits. Even big names like LG and Sony are running their smartphone departments at a deficit or are making a loss.
Contrast that with units sold, and it becomes clear how successful Apple has been in generating its massive profit margin for a lower number of unit sales.
In terms of units, Samsung actually led the smartphone market with a 22.5 percent share. Apple was the second vendor with 11.7 percent unit market share, down from 14.4 percent a year earlier.
This brings us back to the user-base argument. Figures from the United States in the first quarter of this year show that Android grabbed 65.5 percent of the market. That’s 7.3 percent more than the same quarter last year. In the top five European markets (UK, France, Germany, Italy, and Spain), Android’s market share increased to 75.6 percent, up 7.1 percent compared to the same period a year ago.
In other markets, where local manufacturers are prevalent and all use Android as the operating system for their devices, the percentage is higher. In China, Android phones have a 77 percent market share, up 6 percent from a year ago.
This situation could be a threat to Apple’s continued dominance in profitability. So, what can Apple do to maintain the status quo?
The numbers above are related to the first two quarters of the year, before Apple recently launched the iPhone 7. Looking at sales reports in mid-September, Apple has already sold out the initial quantity of the new jet black color iPhone 7 on pre-orders, and has almost sold out all colors of the iPhone 7 Plus. So, it appears that Apple will regain some of its lost ground in unit market share and will therefore continue to dominate profitability due to the high prices of its devices.
This brings us to analysts who point out that Samsung, profiting from its premium and expensive phones such as the Galaxy S and Note series, resembles the only hope for Android to gain ground in the profitability stakes.
In the meantime, Samsung is grappling with an exploding battery problem with its Note 7 handset, and the ensuing recall of devices and replacement costs. It will probably impact its profitability in 2016. But, there’s always next year to catch up with Apple.
Though it seems inconceivable, if Samsung’s smartphone business starts to lose money, Apple will capture an even larger percentage of the world’s smartphone profits.
So from a business perspective, the current clear winner is Apple. From a user-base perspective, the winners are the Android phone manufacturers. Meanwhile from a consumer perspective, we’re all winning. You can be practical and budget-conscious by buying an Android phone that’s as powerful as an iPhone but only costs half the price. Or you can splash out on an Apple device, or a high-end similarly priced Samsung phone, because you can afford such a device and you’re a brand-driven consumer.