Once the former visionary CEO of Apple Inc. (NASDAQ:AAPL) said that brands must focus on educating customers about products and sales will be skyrocketing by its own. Undoubtedly, it’s the same belief that has helped Apple to pocket 92% of total smartphone industry profit in Q4 2016, leaving its arch rival Samsung much behind who sold an almost equal number of smartphones in the same duration.
According to a recently released research note by Canaccord Genuity analyst Michael Walkley, Apple has dominated the high-end smartphone product with distinctive margin. iPhone has emerged as the most popular and profitable expensive smartphone by far as it helped Apple to garner 92% of total smartphone industry profit, in terms of hardware.
Though Apple took five years to reclaim the numero uno position in the smartphone market by shipping maximum units of iPhone in Q4 2016, Apple has been taking the lion’s share of the smartphone industry profit for the last few years. This one simple stat can highlight the brand impact of Apple: In Q3 2016 Apple sold just 45.5 million units of iPhone but took 91% of total smartphone industry operating profit.
In Q4 2016, both, Apple and Samsung sold a nearly equal number of smartphones. In fact, Samsung sold more mobile phones, in total, 77.5 million smartphones and 12.5 million mobile phones. Despite, iPhone users found the expensive iPhone worth each penny and paid way more for Apple devices than Samsung.
The average selling price of iPhone (ASP) in the latest quarter was US$695 – almost 4X than the ASP of Samsung smartphone that clocked $185.
Below is what Canaccord has got to say as a takeaway:
Given the Galaxy Note 7 issues and strong demand for iPhone 7 Plus models, we believe Apple will extend its leading market share of the premium-tier smartphone market installed base during 2017.
We believe these trends enabled the iPhone installed base to exceed 570M exiting 2016, driving record December quarter services revenue.
We also believe the impressive installed base should drive strong iPhone replacement sales and earnings, as well as cash flow generation to fund strong long-term capital returns.
While we anticipate a stronger upgrade cycle in 2018 with the 10-year anniversary iPhone 8, our surveys indicate solid iPhone 7 demand that should bridge the gap until a new form factor iPhone is likely released in September.
Brands Must Learn From Apple
The above stat can be seen as a case study for all those brands who believe in volume business and claim to be selling their devices for razor thin margin. Despite being widely criticised for its exaggerating pricing strategy, Apple has given a cold shoulder to criticism and has maintained its profit margin on each iPhone. According to IHS technologies, Apple has to bear $236 to manufacture an iPhone 6s and nearly $225 for iPhone 7. Both the devices, however, were launched with the price tag which was the 3X cost of manufacturing.
Despite growing competition and lowering ASP (Average Selling Price) of a smartphone in the market, Apple refused to compromise with its profit margins. Call it over confidence of Tim Cook & Team or a strong belief in their product quality; the strategy has been paying off, so far!