Friday, November 4, 2011

Apple Dominates Wireless Operating Profits

According to a report by Canaccord Genuity posted on All Things D, Apple (AAPL) appears to be the only wireless handset maker with a decent profit margin. Incredibly AAPL was able to capture more than a third of the operating margins in the industry.

Yet another sign of why market share analysis tends to focus on the wrong measurement. Lots of news lately about Samsung selling more phones in Q3 and of course Google (GOOG) selling more operating systems via the Andriod than AAPL.

The ultimate score card shows AAPL with margins roughly double that of Research in Motion (RIMM) and Samsung. Also, notable is that the majority of the operating profit gains since 4Q09 went directly to AAPL. Profits were shifted from Nokia to Samsung and HTC though.

By having a limited supply of really good products, AAPL has figured out the holy grail of profit generation. Less is more. Like in investing, the 15th best idea just isn't going to make money like the best idea so why spend time and money on it.

The only concern is that by limiting products, AAPL does allow competitors to gain market share. Will it become like AMD to Intel (INTC) in the chip sector where AMD only obtains the scraps. Or will it become like the computer market where the market share eventually lead to domination by the Microsoft (MSFT) led platform.

So far it appears that the process by where carriers subsidize the price of the phone has allowed AAPL to maintain strong market share and profits. Consumers would unlikely pay the $600-700 for the phones upfront, but unless the current process changes I'd expect AAPL to dominate where it didn't in the computer market.







Disclosure: Long AAPL. Please review the disclaimer page for more details. 


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