Apple and Samsung have been slowly sucking the air out of the smartphone market for some time now. With Samsung taking the mantle of the leading Android handset maker and aiding in Google’s mobile operating system expansion, Apple is scooping up the ever-coveted profit margin measurement, there is arguably little left for other hardware manufacturers to attain in the space.
In a see-saw battle of smartphone titans, Samsung managed to snatch a bit of profit from Apple’s usually secure margins as iPhone numbers slipped and Galaxy phone sales rose last quarter. According to a report from ZDNet, backed by analyst’s findings, Samsung’s climb over Apple may only represent a pyrrhic victory as the bottom line for all smartphone manufacturers is in a state of disruptive flux that is wreaking havoc on the industry’s ability to sustain profit margins as a whole.
Given the ramp of Chinese OEM smartphone volumes and particularly strong 2015 smartphone market share gains for Huawei, we note our industry profit analysis excludes a large portion of this group of OEMs gaining an increasing share of the smartphone market profits due to the lack of available and comparable profit metrics. While this likely overstates Apple's profits, we note some leading smartphone OEMs in China are growing global market share through aggressive pricing strategies limiting near-term profit levels. Inside the Greater China region, the share has shifted to Chinese OEMs as well. In fact, in Q2/C15 Apple was number 1 vendor of smartphones in China, and we now believe in Q2/C16 Apple fell to the number 5 vendor behind Huawei, OPPO, Xiaomi, and VIVO.”
Thanks to some aggressive movement by OEM’s chasing short-term viability behind device pricing, anyone who isn’t Samsung or Apple is seeing a quick boon in sales. The unfortunate dark side to this trend is that pricing wars may be speeding up the commoditization of the hardware without buying OEM’s time to develop retention saving services and offerings. While even industry titans face increased pressure from pricing wars, Apple can rely (for a time) on its software, services, and terrestrial hardware offerings to indenture brand loyalty and adoption; Samsung can do the same to a lesser extent.
However, the OPPO’s, LG’s, Xiaomi’s, and Motorola’s of the world are left hammering increasingly thin profit margins without time to build a hardware or software ecosystem that helps feed the company’s shrinking bottom line.
Where is Microsoft in all of this?
Perhaps, exactly where many will be as the market continue to shake out, waiting on the sideline for the starting player to get injured. Microsoft’s departure of the consumer facing smartphone market was and still is heavy felt for long time users of Windows phones, but judging by the numbers may have been an inevitability.
With the old question of who will help cultivate the smartphone industry becoming all but a drawn conclusion, the next question becomes, why continue to participate? How do companies that rely on an ecosystem of apps, software, and services they do not control, justify competing in a dwindling profit margin game?