Pie chart: Apple's outrageous share of the mobile industry's profits
Cupertino is raking in the cash as its competitors struggle to post any profit at all. Canaccord Genuity initiated coverage of Apple (AAPL) Tuesday with a “buy” rating and a price target of $356 per share.
Context & Ripple Effects
The profit-pool story has been building for years: Fortune's Digital Daily reported in August 2009 that the iPhone already claimed 32 percent of handset industry operating profits, a pattern that echoes Apple's earlier ability to take the profitable end of the notebook market — the outlet pegged it at a 29% share of high-end notebook dollars back in October 2007.
What changes on September 21, 2010 is that Wall Street formally underwrites the imbalance: Canaccord Genuity initiates coverage of Apple with a buy rating and a $356 price target, betting that rivals' thin-to-nonexistent handset margins persist while Cupertino keeps capturing an outsized slice of industry profits.
First-order effects
- Canaccord Genuity's $356 target gives institutional investors a fresh, explicit anchor for valuing Apple on profit capture rather than unit share, right as competitors are struggling to post any handset profit at all.
- Rival handset makers now face investor scrutiny framed around Apple's margin benchmark — their own results get read against a competitor whose profits dwarf theirs despite a small unit-share base.
Second-order effects
- Suppliers and component makers see bargaining power tilt toward Apple, which can commit volume from a position of profitability while struggling OEMs negotiate from losses.
- Carriers and distributors competing for the iPhone face pricing pressure, since Apple's profit position lets it hold firm on terms that loss-making rivals cannot match.
Third-order effects
- If the 2009-2010 trajectory holds, the mobile industry structurally splits into a small set of profit capturers and a long tail of volume players surviving on scale or subsidy — with analysts increasingly valuing hardware makers on operating-profit share rather than market share.
- Sustained concentration invites antitrust and platform-regulator attention toward whoever holds the profit pool, since control of margins tends to come bundled with control of app ecosystems and carrier terms.
The trend: Mobile handset economics are consolidating around a single dominant profit-taker, shifting how analysts and investors measure competitive position — by share of profits rather than units shipped.