According to a
"Apple's ability to maximize pricing and minimize production cost is hugely impressive, and the iPhone continues to generate monster profits," the press release read.
Image source: Apple.
Rounding out the top four most profitable smartphone vendors were Huawei in second place with a 2.4% operating profit share, and Vivo and OPPO tying for third place with 2.2% each.
All other smartphone vendors, which Strategy Analytics lumped into a category called "Others," generated -- in aggregate -- the remaining 2.2% of the operating profit to be had in the industry during the third quarter.
Let's take a closer look at what this means for Apple investors.
A double-edged sword
On one hand, it's incredible that Apple can gobble up so much of the industry's profits. Its performance speaks to the quality of Apple's business.
On the other hand, such immense profit share means a couple of things:
- Apple has limited room to grow its profit share.
- Apple's competitors are going to compete fiercely to try to grab additional profit share, putting Apple on the defensive.
Now, while commanding so much of the industry's profits is risky, it's not necessarily a "doomsday" scenario for the company. Great companies like Apple can often grow the total amount of profit that an industry generates by fundamentally increasing the value the industry delivers to consumers.
For example, let's suppose Apple can persuade a customer to, instead of buying a $300 phone from Huawei or OPPO, buy a $700-plus iPhone. In this case, Apple is growing the total profit pool in the industry, since Apple's gross-margin dollars on a $700 iPhone is going to be much greater than what the alternative phone would generate for whichever company is selling it.
Doing this isn't easy, though. Apple pulled it off during the iPhone 6 cycle, when it saw large increases in average selling prices and unit shipments, but it was unable to replicate that success in the following iPhone 6s cycle. In fact, Apple lost share during that cycle, with its unit shipments declining year over year even in a market that grew.
Looking to the future
It's too soon to tell for sure how the iPhone 7 cycle will play out for Apple in terms of unit and profit share, though the initial success of the higher-priced iPhone 7 Plus model is certainly encouraging. However, I believe that all eyes are on Apple's coming iPhone cycle, during which the company is expected to release a radically redesigned iPhone with a curved OLED display.
It is during that cycle that Apple has the potential to drive both significant unit share gains and a substantial boost in average selling prices. Should those things come to pass, Apple's unit, revenue, and profit share within the smartphone market could be poised to move higher than the 91% it saw in the third quarter of this year.
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