The Breakdown

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The secret of the Apple iPhone's success: Profits!

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Apple just flat-out killed it last quarter, largely on the strength of iPhone sales. Most analysts, technological and financial, now readily agree that Apple reinvented the smartphone business with the iPhone by putting a computer in your pocket. What's perhaps less apparent is that Apple also reinvented the business model for mobile communications. That's why this headline from CNET provokes a double-take: "iPhone Soaks Up 75 Percent of All Mobile Phone Profits."

What?!?! Three quarters of all profits available in the mobile space go to Cupertino? That's remarkable. Here's CNET:

Though it holds only around 9 percent of the global mobile phone market, Apple raked in 75 percent of all profits across the industry last quarter, according to Asymco analyst Horace Dediu.

That left rival Samsung with 16 percent of the profit pie, RIM with 3.7 percent, HTC with 3 percent, and Nokia rounding out the list of 1.8 percent. All together that pie represents around $15 billion in profits for the final quarter of 2011.

Smartphones only amount to about a third of the total mobile market. But Apple is essentially using that slice to print money, at this point. It's not to hard to figure out that if Apple controls less than 10 percent of the entire market but can claim the vast majority of profits across the industry, the serious profits are coming from one place and one place only: smartphones.

Apple commitment to smartphones — it doesn't sell anything else — is sometimes considered a potential vulnerability. In the developing world, for example, the iPhone looks like an outrageously expensive piece of equipment. Better to sell cheap, basic phones that can tap the wireless market, enabling communications where there formerly were none and more importantly, a new system of mobile-phone-based payments for goods and services. The inexpensive handset is just a gateway to a new kind of banking.

That's all well and good as a strategy. But Apple doesn't seem to care — and the company is clearly reaping the benefits of its indifference. Other mobile device makers can go where the customers are. Apple is content to pursue the fattest profits from the cusomers who can pay the most and let everyone else fight it out for the leftovers. Who needs to chase market share when you've figured out a way to get consumers to pay much, much more for your phone than it costs you to make it? Sure, this does mean that Apple is relying on the iPhone to pull the train. But this isn't a company that lacks confidence when it comes to innovation. Remember, just wheh the iPhone was looking a little long in the tooth, the iPad arrived.

This isn't just thinking different. This is running a business insanely greater than almost anyone in history ever has.

Follow Matthew DeBord and the DeBord Report on Twitter.

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