Overall global handset profits declined 11% YoY to USD 12 billion in Q3 2019 due to an increased mix of entry to mid-tier products and a fall in revenues for key smartphone OEMs. Within the top ten brands, only Samsung and Huawei managed to increase their revenue on an annual basis. Additionally, the replacement cycle for premium smartphones has lengthened as recent hardware features have been unable to offer an attractive reason to upgrade.
Apple dominates the global handset market by capturing 66% of industry profits and 32% of the overall handset revenue. The loyal premium user base in the major markets like the USA, EU and Japan is one of the reasons that Apple can still operate at a profit level that its competitors can only wish for. Now with a strong service strategy, Apple’s overall ecosystem is strong enough to guarantee it a steady inflow of revenue in the coming years. In the immediate future, we believe that Apple’s profit for the holiday season will increase with the new line up of iPhones gaining good traction.
Samsung is a distant second, taking 17% of the overall handset Industry profits. The increased mix of Galaxy A Series along with the positive start of Galaxy Note 10 Series was the key reason for the growth.
Chinese smartphone brands operate at low-profit margins, but better than in previous years, even though they are expanding outside China and also penetrating high-tier price bands. Chinese brands offer attractive propositions to mature smartphone users with new feature-packed flagships at affordable prices. Some of these Chinese brands are also now looking at monetizing their userbase by launching services like financial services, IoT products and others. However, it is becoming a challenge for Chinese brands to increase their smartphone ASPs and margins due to a combination of longer consumer holding periods and Apple lowering pricing on some key SKUs, which has limited the headroom that Chinese vendors had used to increase their ASPs.
In coming quarters, the adoption of 5G will drive some upgrades. This will likely lead to revenue growth for OEMs which are already preparing themselves ahead of full 5G commercialization. For example in China- Huawei, Oppo, Vivo and Xiaomi will gain from aggressive 5G push and use this opportunity to increase their ASP. While revenue growth is probable, bill of materials (BoM) costs will also tend to rise, so profit margins may not benefit to the same extent,
*This analysis includes normalized (only positive) operating profit.
According to the latest research from Counterpoint Market Monitor Q2 2018 (April-June), Global handset profits grew 4% annually in Q2 2018 mainly due to Chinese brands, which were aggressive with their flagship offerings. Their combined profits crossed US$ 2 billion for the first time, contributing to almost a fifth of the total handset profits.
Chinese brands are planning on to entering new price tiers in the premium segment. Brands like OPPO, vivo and Huawei have tweaked their design language by adding new features, at a time when overall innovation within smartphones was already reaching its peak. Examples include the vivo Nex (Ultra Full View Display with in-display fingerprint), OPPO Find X (Ultra Full View Display) and Huawei’s P20 Pro (Triple camera).
We expect the average selling price of smartphones will further increase, driven by developed markets. However, smartphone volumes are likely to be flat as consumers are now keeping smartphones for longer. This will have implications for OEMs’ revenue as OEMs are looking to maximize their profits by increasing their average selling price and entering new price tiers. Only vertical integrated companies, in such a scenario, are well poised to capture the trends.
Apple remains the most profitable smartphone brand. iPhone X, which drove a new design language, helped Apple command a significantly higher Average Selling Price (ASP) during the second quarter, at a point when the overall smartphone market was beginning to saturate.
Market Summary – Q2 2018
Global handset profit grew 4% annually, capturing 11% of the total handset industry revenue in Q2 2018.
Apple was the most profitable brand in Q2 2018 with 62% market share followed by Samsung 17% and Chinese brands: Huawei (8%), OPPO (5%), vivo (4%) and Xiaomi (3%) were the key Chinese players which grew during the quarter.
The remaining 1% of total industry profit was distributed among more than 600+ handset brands.
Samsung’s profit declined 21% annually due to weaker than expected sales of the Galaxy S9 series. The Galaxy S9 series shipments declined 24% in Q2 2018 as compared to Galaxy S8 series in Q2 2017.
Xiaomi (747%), Huawei (107%), vivo (24%) and OPPO (23%) were the fastest growing smartphone brands in terms of handset profits during Q2 2018.
Chinese brands crossed the US$ 2 billion mark for the first time. Chinese brands kept on introducing flagships with cutting-edge features and futuristic designs throughout the year. These are driving sales and increasing profit margins for them.
The comprehensive and in-depth Q2 2018 handset profit share analysis is available for subscribing clients. The methodology involves insights from supply chain interviews and our Bill of Materials (BOM) tracker. Feel free to reach out to us at firstname.lastname@example.org for further questions regarding our in-depth latest research, insights or press enquiries.
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