Nov 052014

Since the fundamental reason a business exists is to make profits (and the more the better), one might ask the question – Why do Samsung, HTC, Microsoft, LG, Blackberry etc even bother to sell smartphones.

A new research report put out by Michael Walkley of research group Canaccord Genuity estimates that Apple took 86% of the profits made by the major handset vendors in the third quarter (July-September) of 2014.

Although Chinese smartphone vendors (peddling Android devices) have been in the news lately because of their low cost and fast processors, Walkley did not include them in his report for want of financial data.

Besides Apple, Samsung and LG were the only prominent handset vendors in positive territory in the third quarter.

“We believe Apple is experiencing a record iPhone 6 upgrade cycle due to very strong replacement sales as well as from high-tier smartphone market share gains from Android,” Walkley wrote in the research note. “We believe these trends should result in very strong (fourth quarter of calendar 2014) smartphone sales and share gains for Apple.”

Samsung – Bad Shape

In contrast to Apple’s go-go quarters, Samsung Electronics is struggling in recent quarters.

Samsung reported a sharp fall in third quarter 2014 profits triggered by lacklustre smartphone sales.

Samsung Electronics’ third-quarter operating profit fell 60.1% to 4.1 trillion won ($3.90 billion). Worse, the company’s mobile division profits for the quarter crashed by 73.9% to 1.75 trillion won.

Apparently, many consumers are giving the cold shoulder to the company’s profitable high-end Android-based smartphones like the Samsung Galaxy S5.

It was the second consecutive quarterly decline in smartphone profits for Samsung.

In the third quarter, Samsung sold 120 million mobile phones but the portion of smartphones fell below 80%.

Samsung is struggling against Apple at the high-end and battling nimble vendors like Lenova and Xiaomi in the mid to low-end segments.

Samsung is rightly pessimistic over prospects for smartphones in the October-December 2014 quarter. Apple’s new large-screen iPhone 6 and iPhone 6 Plus are off to a rocking start and should make the going extremely difficult for the rest of the handset industry.

Walkley put both Motorola Mobility and Microsoft in negative territory on their handset business in the third quarter.

Microsoft has sunk billions into its smartphone and tablet businesses but seen only a sea of red ink in return.

Apple has lost the numbers game battle to Android but its profits of $8.5 billion in the July-September quarter show how far ahead it’s in the profits war. iPhones accounted for 56% of Apple’s September quarter revenue of $42.12 billion.

Should open source software based smartphones like Firefox OS and the upcoming Ubuntu phones gain momentum, the damage to the likes of Samsung, LG and Microsoft will perhaps be irremediable.

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