Only Two Companies Are Making Money Selling Smartphones

A blog about business and economics.
Feb. 12 2014 7:36 AM

Apple and Samsung Are Increasingly Dominant in Mobile Phones

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Still crushing it.

Photo by Donald Bowers/Getty Images for Samsung

Apple and Samsung, the leading smartphone vendors, have posted earnings results recently that showed a sharp slowdown in profit growth from where both companies had stood for years. Under the circumstances, it's natural to assume that waning market share or competition from new entrants is to blame.

But research from Tavis McCourt, an analyst at Raymond James, says that's not the case. Apple and Samsung are actually more dominant than ever. Their problem is that the global demand for smartphones has stopped growing so fast:

Apple (AAPL) and Samsung continue to soak up all the industry's profits, McCourt says. Apple claimed 87.4% of phone earnings before interest and taxes in the fourth quarter, he said. Samsung took in 32.2% of industry profits. Because their combined earnings were higher than the industry's total earnings as a result of many vendors losing money in Q4, Apple and Samsung mathematically accounted for more than 100% of the industry's earnings.
A year ago, Apple accounted for 77.8% of mobile phone industry profits, followed by Samsung with 26.1%, McCourt said.
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In the United States, this reflects a near-satured market. It's not that everyone owns a smartphone, exactly, but that owners of nonsmartphones are increasingly likely to be people who've made some kind of deliberate choice to avoid owning one. But in a global sense, the economic troubles that have afflicted many large emerging markets are probably to blame. Countries like Brazil and Indonesia and India are full of people who'd love to own a smartphone with a decent data plan, but they're just way too poor. When countries like that get on a "catch-up" economic trajectory with per capita incomes growing 5 or 6 percent a year, then the market for smartphones grows fast. But when those countries struggle, vendors are left fighting over a fixed pool of demand.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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