Apple Estimated to Account for 20% of Cellphone Industry Profit
The Wall Street Journal reports (subscription required) on research from Deutsche Bank analyst Brian Modoff showing that Apple and Research in Motion together accounted for approximately 35% of the cellphone industry's total operating profit …
Context & Ripple Effects
Deutsche Bank analyst Brian Modoff's estimate — carried by [[entity:The Wall Street Journal|The Wall Street Journal]] under the headline "Apple, RIM Outsmart Phone Market" — puts Apple at roughly 20% of the cellphone industry's total operating profit, with Research in Motion lifting the pair to about 35%. The figure lands just weeks after Apple slipped from fourth to fifth place in US computer sales in IDC's spring estimates, underscoring how little its handset earnings depend on its PC business.
Two confirmed data points around the estimate explain where that profit originates: Nielsen's Q2 2009 survey found 29.4% of iPhone 3G buyers upgraded from Motorola devices, many from the RAZR line, and Apple had just moved to open the iPhone 3G to Orange and T-Mobile — widening the distribution base for a device already punching far above its weight in operating profit.
First-order effects
- High-volume handset vendors face an uncomfortable benchmark: Apple captures roughly a fifth of industry operating profit while holding a small unit share, meaning shipment-count leadership no longer maps to earnings power in this market.
- Apple's expansion onto Orange and T-Mobile directly enlarges the customer base for a device whose margins are already the industry's outlier, compounding the profit-concentration effect Deutsche Bank measured.
Second-order effects
- Nielsen's finding that nearly three in ten iPhone 3G buyers defected from Motorola — largely RAZR owners trading up — marks the iPhone as a direct drain on Motorola's replacement base, squeezing its mid-tier lineup from the top of the price ladder.
- RIM's presence beside Apple in the 35% combined figure shows the premium smartphone tier, not any single vendor, is where the profit pool sits — pressuring every other manufacturer to chase higher-margin devices or cede the profitable segment.
Third-order effects
- If profit keeps pooling in premium smartphones, handset makers' strategies reorganize around operating-profit share rather than units shipped, and analysts increasingly value phone companies by margin capture instead of market share — the lens Modoff's research applies here.
- The pattern points toward platform-level consolidation: vendors controlling differentiated software ecosystems (Apple's iPhone, RIM's devices) take a structurally larger cut of industry profit than hardware-led competitors, reshaping which firms survive the feature-phone-to-smartphone transition.
The trend: Handset-industry profits are concentrating in premium smartphone platforms faster than unit shares shift, decoupling earnings power from shipment volume.