Analyst: With 17.9% share, Apple took 87% of smartphone profits

Samsung last quarter got only 10% of profits with an 18.2% market share.

From a note to clients by Canaccord's T. Michael Walkley that landed in my inbox Thursday:

Our North American survey work and meetings with industry contacts at MWC indicate a sluggish smartphone market is likely to persist during 1H/18 with iPhone maintaining strong share of the premium tier market...

While we believe initial demand for iPhone X was solid in the United States and China during the December quarter, we anticipate weaker trends in 1H/C18 for both these regions as the higher price limited some demand. For the mature North America market, we believe the price point above $1,000 has been a greater deterrent for broad market appeal than anticipated. In China, we believe the 5.8-inch iPhone X screen size is not large enough for a segment of this market. In fact, a variety of phones from Chinese OEMs with similar or larger screen sizes were already available prior to iPhone X...

Despite these challenges, we believe iPhone X sales will remain steady and we expect stronger unit sales in 2H/18 with new product launches. Following a solid December quarter of iPhone sales consistent with seasonal trends, we estimate Apple captured 87% of industry profits, up from 72% in the September quarter.

Maintains Buy rating and $200 price target. 

Below: Walkley's spreadsheet. Click to enlarge.

87% profit share

4 Comments

  1. Tommo_UK said:
    Contrasts nicely with Samsung having a similar 18.2% market share, but just 10% of global profits last quarter.

    So if Apple has 87% of global profits and Samsung 10%, that leaves all the other hundreds of manufacturers squabbling over the remaining 3%, like chickens in a coop waiting to have their necks wrung (apologies to vegans).

    You have to wonder why they’re bothering really. Apart from the ability to launder mone, generate foreign revenues (which perhaps they keep abroad outside of Asia) and write-off losses as tax breaks.

    Anyone got a hotline to Ming-Chi The Merciless? Maybe he could shed some light on this.

    1
    March 1, 2018
  2. Gianfranco Pedron said:
    Samsung really competes with Apple directly only in the top tier smartphone market segment. I’d be curious to know what the share split for units and profit looks like where the two compete directly.

    Samsung’s R&D and manufacturing spend per unit to compete in the high end market must be disproportionately higher when compared to Apple’s. Not having an OS to support and possibly procuring components from other Samsung divisions at or near factory cost instead of wholesale must give them an edge. Judging by the discounts and promotions offered on Samsung flagship devices shortly after the early adopters/obsessive upgraders have had their fill Samsung is struggling with ASP.

    By providing a SD slot and limited onboard memory Samsung also appears to be leaving money on the table although they recoup some of that loss by selling it as a marketing advantage. On the other hand, Samsung also makes much of the memory going into the manufacture of the SD cards so some of that come back into the wallet of the Samsung chaebol.

    0
    March 1, 2018
  3. Gregg Thurman said:
    “For the mature North America market, we believe the price point above $1,000 has been a greater deterrent for broad market appeal than anticipated. In China, we believe the 5.8-inch iPhone X screen size is not large enough for a segment of this market. In fact, a variety of phones from Chinese OEMs with similar or larger screen sizes were already available prior to iPhone X…”

    Analysts just can’t help themselves (even the good ones). The above is just another way of saying price is the most important differentiator and iPhone price is to high.

    These ‘learned’ comments ignore that the #1 selling smartphone during the December quarter was the iPhone X, even though it was only available for 2 months, and that iPhone ASP increased 14+% YoY to $796, more than double Samsung’s ASP.

    I read something earlier this week (trying to find it again) wherein the author states that the problem with AAPL’s valuation is the analysts covering it. He believes APPLE should be covered by retail analysts because technology analysts don’t know squat about retail. He believes Apple is a retail company that just happens to develop, design and manufacture its own products. He gave examples of commodity retail companies with higher ISMs (PE if you must). Further, he agrees that Apple is a one product company, but unlike technology analysts who hold that iPhone is that product, he believes that one product is the iOS ecosystem.

    0
    March 1, 2018
  4. Gregg Thurman said:
    I strongly disagree with Walkley’s 2019 market share estimate for iPhone.

    If iPhone 8 COGS is 40% of list, then COGS is $280 (which is higher than teardown estimates). I cannot bring myself to believe that the iPhone X will cost $400 (40% COGS rate) with the FY2019 model. Higher memory prices will naturally increase supply (bringing memory prices down). Further FaceID camera technology is ramping to expand into more iPhone X like models. That expansion will bring that price down as well.

    Then there is the cost of OLED panels. There are 3 current OLED manufacturers (other than Samsung) expanding OLED production capacity now. More than one supplier brings prices down. i believe at least one of the 3 will be a supplier for FY2019.

    This all means that (IMO) base model iPhone X 2019 version will be priced at $899, and the Plus version will be priced at $999 all while maintaining a 40% COGS structure.

    $899 iPhone X COGS at 40% = $360, a $40 reduction from current cost.

    With 2 models of the iPhone X 2019 priced from $899 to $1149 (6.5″ model max memory) I think Apple will continue to have launch quarter supply constraints but will gain additional market share. I do not see iPhone market share declining as Walkley’s spreadsheet indicates.

    0
    March 1, 2018

Leave a Reply