Apple Gives Up Some Smartphone Hardware Profit Share to Samsung

Apple and Samsung combined to claim 100 percent of hardware profits in the smartphone industry, according to a new report from Cannacord Genuity. While Apple still claimed most of those profits, Samsung has reached up to take more profits home to Korea.

Apple and Samsung take most of the smartphone profits

Apple has long claimed most hardware profits in the industry, owning more than 70 percent of those profits and leaving the crumbs for competitors to squabble over. Starting in late 2012, Samsung became the other profitable player, and in the December quarter the two companies took 103 percent of those profits (Apple with 73 percent and Samsung with 30 percent), making every other would-be competitor sad.

In the March quarter, however, Apple gave up some of its mind-boggling share, according to T. Michael Walkley's report for Cannacord Genuity. He told clients that Apple took 57 percent of profits, while Samsung owned 43 percent for a combined 100 percent of hardware profits.

That's down from 103 percent because fewer companies lost money making smartphones, though LG was the only other company with enough profit to claim even one percentage point. Google's own Motorola Mobility lost money, while Nokia, HTC, Sony Ericsson, and BlackBerry eked out small profits too small to register on Cannacord's chart.

"Due to operating losses from smaller scale competitors trying to compete," Mr. Walkley wrote, "Apple and Samsung’s combined share of industry profits have exceeded 100 percent in previous quarters."

He added, “While Apple and Samsung continue to dominate the share of industry profits, improving cost structures and results from other OEMs have reduced Apple and Samsung’s combined share to 100 percent from levels above 100 percent the past several quarters.”

The takeaway, however is that Samsung's success with its Android devices is extracting more profits than it has in the past. Apple reported US$8 billion in profits from iPhone in the March quarter. Samsung doesn't break out profits from just smartphones, but Cannacord Genuity's research pegged Samsung's those profits at $6 billion.

The June quarter could be the first time since the ascendancy of the iPhone that Samsung makes more profits from smartphones than Apple. The Cupertino company guided essentially flat year over year, and most folks are expecting soft iPhone sales as more customers start gearing up for the next major iPhone update this fall.

At the same time, Samsung is in the middle of its Galaxy S4 launch, which means that Samsung should have a banner quarter compared to Apple.

"During the June quarter," Mr. Walkley wrote, "we believe softer iPhone sales combined with strong Samsung Galaxy S4 sales could result in Samsung surpassing Apple for the top share of handset industry profits."

We expect the scales to tip back to Apple's favor once Apple releases the next iteration of the iPhone, but expect Samsung and its adherents to crow if Samsung does come out on top for a quarter.