Apple Takes Lion Share of Mobile Industry’s Revenues and Earnings

As another testament to the iPhone phenomenon that has caught everyone’s attention, analyst Travis McCourt of Morgan Keegan estimates that Apple (NASDAQ:AAPL) accounted for close to 50% of overall mobile revenues and a staggering 80% of overall mobile profits in Q4 2011. ^[1] This follows up on another report released by Asymco a few days back that estimates Apple’s revenue and profit shares at 75% and 40%, respectively. ^[2] Either estimate speaks volumes to Apple’s dominance in an industry where it has only a small fraction of the market in terms of units sold.

Our $550 price estimate for Apple stock is about 20% above the market price.

See our complete analysis of Apple here

Hefty Margins on a Very Popular Phone

Apple had a market share of only 5.4% in terms of mobile phone unit sales in 2011, as per our estimates. The immensely popular iPhone 4S, which was launched last quarter, saw Apple’s market share climb but only to 9%  for the quarter. ^[2] The fact that it still was able to garner a lion’s share of the overall revenues and an even greater share of the profits talks volumes of the immense popularity of the iPhone, which makes it possible for Apple to get away with charging a hefty premium.

While mobile behemoths Nokia and Samsung command a much larger market share, a bulk of their unit sales come from feature phones and low-end smartphones that have smaller margins. Apple’s nearest smartphone competitor, Samsung, sold 36.5 million smartphones last quarter, tad behind the 37 million shipment that the iPhone saw but that number included low-end smartphones as well. Apple, however, is yet to come up with a low-end phone. It instead chooses to compete in that segment by lowering the prices of its older iPhone versions. This improves the company’s operating margins as it has to invest little in R&D on rolling out incremental upgrades, like Samsung or HTC do, while still receiving a constant stream of revenues.

Carrier Subsidies Support iPhone Margins

Moreover, the heavy subsidies that carriers offer on the iPhone, since it is such a big draw and helps shore up data consumption on their networks, lessen the need to bring down the iPhone’s cost as well. A recent industry study revealed that the iPhone 4S users consume twice as much data as those using the previous iPhone models. ((iPhone 4S Data Use Skyrockets, PCMag, January 6th, 2012)) This has made carriers like Sprint, although late, to jump on the iPhone bandwagon and make huge upfront commitments to launch the device on their network. Apple made Sprint commit at least $15.5 billion to buying iPhones from Apple over a four year period, irrespective of whether it’s able to find buyers for the device or not.

Higher than company average margins on the iPhone increased Apple’s last quarter overall margins by almost 400 basis points as the iPhone accounted for a greater mix of devices sold. However, as Apple expands its reach and partners with more carriers in emerging markets such as China, it may have to bring down prices to increase market share.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Apple: 50% of Mobile Revenue, 80% of Profit, Says Morgan Keegan, Barron’s, February 7th, 2012 [↩]
2. First: Apple’s rank in mobile phone profitability and revenues, Asymco, February 3rd, 2012 [↩] [↩]