Market analysts and tech media pundits all agreed that Apple was doomed because, well, you know, falling market share. Samsung may control marketshare in smartphones and tablets, but it’s Apple which controls the industry’s profits.
The Squeeze That Hurts
As it stands now, Samsung sells more than twice as many smartphones as Apple, yet Apple makes three times the profits.
It would appear that marketshare isn’t as important as it has been made out to be. Who else makes profit besides Apple and Samsung.
That’s because Apple controls the profits of the entire industry, and that ugly picture is evidenced by Samsung’s recent swoon in the profits department.
By taking the high end of the smartphone and tablet market– with products that are priced higher than all competitors– Apple has enough volume to control the mobile industry’s profits with higher gross profit margins.
Every other smartphone and tablet competitor is forced to sell their wares at lower prices with lower margins (to the point where, in many cases, there is no profit at all). That pressure is especially apparent to Samsung. To sell against Apple, Samsung needs to match components, but sell them at a lower price point, hence, less profit.
At the lower end of the spectrum are Samsung’s Chinese competitors who sell their Android-based smartphones and tablets at even lower price points, putting pressure on Samsung’s sales from the low end.
That’s a two-sided squeeze on profits, hence Samsung’s lower profits for the past five quarters. Apple’s smartphone and tablet unit sales are sufficient to drive profits up, but even when discounted at retail, the sales pressure is applied to competing brands, not to Apple, which already has the industry’s highest margins.
Apple’s ability to buy product components at favorable prices gives the company higher gross profit margins which cannot be matched by Samsung or other competitors who are forced by Apple to sell products for less, hence little to no profit.
Apple does not have a monopoly on marketshare, but the company does have totally legal monopoly control on profit share.
How is it that market analysts and tech industry pundits fail to see the value in Apple’s approach? Instead of spouting ‘Apple is doomed’ nonsense, maybe they should ask how much longer Apple’s competitors can stay in business.