Apple Is Still The Most Profitable Smartphone Company Despite Declined Profit Share in Q1 2017

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The latest data about global smartphone sales from Strategy Analytics is out, and once again its is Apple Inc. (NASDAQ:AAPL) who has earned the lion’s share of the profits, albeit lesser than previous two quarters. According to the report, Apple becomes the most profitable smartphone company, garnered an operating profit of $10.18 billion in Q1 2017. This is almost 83.4% of the $12.21 billion total smartphone operating profits globally!

What is more interesting is that with just 14.9% of Smartphone shipment share in Q1 2017, Apple accounted 83% of total smartphone industry profit share. Clearly, it’s not about selling more number of smartphones to dominate the market. It’s like inviting crowd with empty pockets vs. selective people with deep pockets to your shop!

This comes as absolutely no surprise to anyone, as Apple have been dominating industry profit for some time now. In Q4 2016, Apple pocketed a massive 92% of the global industry profit, whereas the figure was 91% in Q3 2016. This is good news for Apple, who have been suffering from stagnating and depreciating iPhone sales. This also represents an improvement over Q1 2016, when Apple accounted for 79.8% of the industry profit. This likely due to the higher profit margins on the iPhone 7 and iPhone 7 Plus, which enabled them to increase profitability despite sagging sales.

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Meanwhile, chief rival Samsung continues to recover from the Note 7 fiasco, which has significantly affected their profitability over the past two quarters. Samsung managed a net $1.57 billion profit in Q1 2017, accounting for 12.9% of total industry profits. Good news for Samsung is that this represents a significant improvement over Q3 2016 when it narrowly avoided an operating deficit due to the Note 7 fiasco. The situation in Q4 2017 was similar, as Samsung had to recall the Note 7 leaving them without their latest flagship to drive sales. The bad news is that this is still a step backwards compared to last year when Samsung captured 21.9% of the total profits in Q1 2016. Further compounding their problems is the fact that their operating profit ratio in terms of sales was less than one-third than that of Apple (9.7% vs. 30.7%).

However, the launch of the Galaxy S8 and S8 Plus in late Q1 2017 was very well received. This, coupled with the fact that Apple’s sales and profits generally slow down in during the second quarter period (75% in Q2 2016), offers a glimmer of hope for Samsung for Q2 2017 to make up some ground.

Last year, we also reported on the rising star of the smartphone world – Huawei. However, they have not started the new year particularly well. Huawei had the maximum revenue at $6.47 billion, compared to other Chinese OEMs. OPPO followed behind at $5.41 billion. However, despite this, OPPO managed a greater operating profit of $254 million compared to Huawei’s $226 million. In fact, at 3.5% operating profit rate, Huawei even fell behind its other local rival Vivo (4.5%).

As it stands, companies like Samsung and Huawei have a window of opportunity in Q2 and Q3 to increase their profitability at Apple’s expense. Due to the seasonal nature of Apple’s iPhone launches, this leaves a gap in their portfolio that rivals can exploit. However, with the upcoming release of the iPhone 8 expected to break sales records, we can expect Apple to maintain their dominance of industry profit for the foreseeable future.

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