There's an old saying in business that 80% of your profits come from 20% of your customers. It's the 80/20 Rule of Sales. Apple has taken that rule to a whole new level. Apple only sells 20% of the world's smartphones yet made 92% of the profits. That's so beyond staggering that it's a stat that no company is ever likely to duplicate. It's so crushing a statistic that you have to wonder why Apple's competitors just don't fold.
The Wall Street Journal reported yesterday that roughly 1,000 companies make smartphones and only one reaps in the profits.
Canaccord Genuity managing director Mike Walkley stated that "Apple recorded 92% of the total operating income from the world's eight top smartphone makers in the first quarter, up from 65% a year earlier.
Events last week highlighted the lopsided financial picture. Apple is asking suppliers to make a record number of new iPhone models. Meanwhile, Samsung forecast disappointing profits, HTC reported a quarterly loss, and Microsoft wrote down 80% of the value of the smartphone business it acquired from Nokia last year.
The results demonstrate the rapidly shifting fortunes in the smartphone business, which Apple transformed with the iPhone in 2007. At that time, Finland's Nokia was grabbing about two-thirds of smartphone-industry profits, Canaccord estimates.
By the end of the decade, Apple and BlackBerry joined Nokia in the top tier. By 2012, Apple and Samsung essentially split industry profits 50-50. Now, Apple stands far above the others. "That high-end tier has really shifted away from Samsung to Apple," said Mr. Walkley.
So why do other larger smartphone OEM's even stay in the game? According to the Wall Street Journal, "Microsoft and Xiaomi aim to profit after phones are sold, through paid app downloads, phone accessories or other add-ons. Samsung also makes money from making components that go into its phones, as well as those of rivals." In affect, they take the razor and razor blade business model approach to smartphone sales. For more on this report, be sure to read the full Wall Street Journal report here.