Apple iPhone Takes the Smartphone Proft Prize (AAPL)

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Here’s an amazing bit of news for the Apple (AAPL) bulls: Dozens of major companies sell smartphones, but if current trends hold, AAPL will be the only one that does so profitably.

aapl

Source: Apple

Indeed, after the Apple iPhone, the only company that makes money off smartphones is Samsung (SSNLF), but its share of the profit pie is shrinking at an alarming rate.

In 2012, AAPL and Samsung each took home about half of the smartphone industry’s profits. Last year, AAPL grabbed 65% of the pot.

As of the first quarter of 2015, the Apple iPhone accounted for 92% of total operating income from the eight top smartphone makers, according Canaccord Genuity managing director Mike Walkley, as reported by WSJ.com.

Samsung’s share of profits is down to 15%, while every other major smartphone maker either breaks even or books a loss. (That’s why the AAPL and Samsung figures add up to more than 100%.)

So, what’s outstanding for Apple is very troubling for Samsung. The Korean consumer electronics giant has suffered a loss in six straight quarters and expects to do so again in the most recent period.

The key to AAPL taking home all of the industry’s profits is the super-premium pricing of the Apple iPhone, sales of which continue to grow.

AAPL iPhone Dominance Only Grows

Samsung’s strategy is different. It offers a broad portfolio of lower-priced, mid-market and high-end phones. However, that’s proven to be a weakness, especially as it’s stumbled with its flagship Galaxy smartphone series. After all, lowering the company’s average selling price weighs on margins.

Samsung isn’t the only maker of Android smartphones, but it is, by far, the biggest, and that’s why this nugget on average selling prices from the WSJ.com report is such a jaw-dropper:

In 2014, the Apple iPhone had a global average selling price of $624. Smartphones running Android sold for an average of $185, according to market researcher Strategy Analytics.

But, it gets even better for AAPL. Sales of iPhones continue to grow at a robust rate, even as average selling prices go up, thanks to the iPhone 6 and iPhone 6 Plus models.

The importance of AAPL’s profit dominance in the smartphone industry can’t be overstated. As much success as it has with other areas of operation, the iPhone is far and away AAPL’s most important business.

If AAPL continues to have success convincing users to upgrade to newer, pricier models — while stealing new users away from Android — the iPhone profit engine remains safe and so, too, does AAPL stock.

It takes something special to simultaneously achieve both unit growth and price growth under any conditions, but the iPhone first came out in 2007. This is a hit product that has actually become more popular and expensive over time.

If Apple is considered a one-trick pony because of the iPhone, so what? It’s a hell of a trick.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/apple-iphone-aapl-2/.

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