Apple and RIM reap profit rewards
By Michael W. Jones
An industry analyst from Deutsche Bank has noted that Apple and Research In Motion are getting much more than just their fair share of the cell and smart phone marketplace profits.
Brian Modoff from Deutsche Bank has found that Apple and RIM have only 3 percent of the world’s cell phone business but are somehow managing to reap about 35 percent of the operating profits from that marketplace. He also feels that he understands the reasons for that imbalance, and believes that it may even continue for some time to come.
Modoff makes an apt comparison to Nokia, which he says has about 46 percent of the global cell phone business, yet has only earned 55 percent of the profits. Noki primarily sells low-cost cell phones into developing countries, where the profit margins are very low. Demand in those countries, and elsewhere, have cut into Nokia’s sales and it recently posted a two-thirds drop in quarterly profits, according to an InformationWeek story. It is night and day, where Apple and RIM are day and Nokia is night.
Apple has been the truly disruptive player in a smartphone marketplace that only contains 13 percent of all cell phone sales. Their astonishing performance is only expected to grow as the smartphone marketplace continues to emerge. Since Apple, like RIM, only makes smartphones, they are not seeing the downside of the marketplace, which is “dumb” phones, a segment which may continue to slide.
The Cupertino electronics giant has sold more than 20 million iPhones in just two years, and are coming off by far their best quarter ever. They have recently dropped an already low $199 entry fee for smartphones with a $99 price on the older 8GB 3G model. These prices are considered low since the wireless carriers that sell the devices have been subsidizing prices liberally.
While Apple is moving quickly into the business marketplace dominated by RIM, an opposite movement is also talking place, with RIM beginning to offer models that appeal to non-corporate users. For all of these reasons, and more, Apple and RIM would seem to have a solid future in the growing smartphone segment. At this moment, only the Palm Pre would seem able to play spoiler.
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