iPhone competitors fight over scraps as Apple gorges on profits

Photo of the Apple logo.

Apple is still dominating the cell phone industry. CC by a_whisper_of_unremitting_demand/Flickr

The mobile industry has been looking for an answer to Apple’s iPhone, but it continues to suck all the air out of the room. Apple’s emphasis on brand and refusal to compete on price has resulted in the biggest chunk of mobile industry profits despite having the smallest market share. Apple’s iPhone is so popular the “Antennagate” issue of last summer had virtually no effect on sales. Analysts are saying Apple’s domination of the mobile industry makes it unlikely that Android, which depends on devices that compete on price, could ever pose a threat.

Apple prospers through innovation

The iPhone has always attracted a great deal of media attention. But the true nature of Apple’s money-making machine was detailed by Fortune on CNN.com. Giving its stock a “buy” rating, the fund market analyst Canaccord Genuity projected out Apple stock as high as $356 per share. The analyst’s recommendations included data showing how Apple is turning its innovations into cash. From January to June this year, Apple sold 17 million iPhones. That total represents a market share of just 3 percent. Samsung, Nokia and LG–the world’s three largest handset makers–sold 400 million units combined. Apple racked up the numbers where they counted. The company amassed 39 percent of industry profits in that time frame. The top three heavyweights fought over 32 percent of mobile industry profits. Canaccord Genuity pointed out that most handset companies struggle to make a profit or even 10 percent operating margins. With its iPhone, it is believed that Apple enjoys a 50 percent gross profit on top of a 30 percent operating margin.

Beneath the surface of Apple’s success

Capturing just 3 percent of a market while reaping 40 percent of its profit was impossible. Then Apple created the iPhone. Apple has far outgained its rivals with more than slick marketing campaigns, according to Jason Mick at Daily Tech. Mick writes that because the iPhone is so popular, AT&T has given Apple an extremely lucrative contract to grow its subscriber base. Apple gains another profit advantage over Android competitors by using less expensive hardware. It uses the popularity of its products to get high volumes at lower prices. This strategy gives Apple plenty of money to innovate in the battle against Android. But Mick said, why bother?. All Apple has to do is keep its loyal customers happy.

It’s tough to tarnish Apple’s brand

Apple haters hoped Antennagate would be Apple’s comeuppance. But the media maelstrom amounted to nothing. When the iPhone 4G was unveiled, a concerted media effort to inflate a reception issue with the new model didn’t make it much further than the blogosphere. When Consumer reports tested the iPhone reception problem and said it could not recommend the iPhone, Apple bashers reacted with glee. It still won’t. But the iPhone marches on. According to Computerworld, the J.D. Power and Associates customer satisfaction rankings for smartphones lists the iPhone at the top of the list—its fourth consecutive first place finish.


Daily Tech

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