Apple Captures 75% of Global Handset Market Operating Profit in Q2 2021

The dynamics of the top global handset OEMs keep changing from a shipment point of view, as we saw with Xiaomi becoming the second-highest selling smartphone brand globally in Q2 2021. However, the picture from a revenue and operating profit point of view has stayed much more stable over the past several quarters.

Counterpoint Research Major Handset Vendor Position Shift by Shipments, Revenues and Operating Profit

Apple has been the biggest profit and revenue generator in the handset business. In Q2 2021, it captured 75% of the overall handset market operating profit and 40% of the revenue despite contributing a relatively moderate 13% to global handset shipments. While this performance shows the power of the Apple brand, it is still lower than the peak of Q4 2020 when its revenue share reached a staggering 50%, up from 28% in Q3 2020, and its profit share reached an unprecedented 86%, up from 51% in the previous quarter. While there was a significant jump in its shipment share, from 9% to 17% in the same period, the extent of its revenue share reflects the success of its first 5G-enabled iPhone series. Apple also benefits from interoperability between its devices. The convenience with which one may shift between a Mac, iPad and an iPhone encourages users of one Apple device to stay within the Apple ecosystem by acquiring other of the brand’s devices. This is made possible by Apple’s significant control over both hardware and software, enabling a seamless shift of work on an app between multiple devices. While this has been the case for some time, it has become particularly pronounced with the stickiness of music, media, news, storage, etc. Apple is likely to retain this edge, enabling it to continue charging premium prices for its handsets, thus maintaining high operating profit margins.

Samsung, the biggest global smartphone vendor in terms of annual shipments, usually follows Apple in revenue and profit share. There have been two instances when Samsung has failed to generate the second-highest revenue share – Q4 2019 and Q2 2020, when Huawei reached the number two spot. In terms of profit, however, Samsung has consistently been the number two player for the past several quarters.

Despite relative stability at the top, a major shift in recent quarters was caused by Huawei’s decline following the imposition of US sanctions against it. Huawei’s fall has been accompanied by the rise of other Chinese OEMs, particularly Xiaomi, OPPO and vivo, which were the biggest revenue generators respectively after Apple and Samsung in Q2 2021.

While Xiaomi has done very well in terms of shipments, its performance from a profit point of view has not been as strong. This is because Xiaomi has been focusing on excelling in the shipments game in the past few years. Having made strides on that front, its next goal will be to convert its high-volume smartphone business into a highly profitable one. Signs of this shift started becoming visible in 2021 when, for the first time since H1 2019, it generated noticeably positive operating profit as it started launching smartphones with a higher average selling price (ASP). With its recently launched Mi Mix Fold, Xiaomi also entered the ultra-premium foldable phone segment, so far dominated by Samsung. Its other recently launched high-ASP models include the Mi 11i and Mi 11X Pro. However, their relative shipment performance has significant room for improvement, especially when compared with Samsung’s flagship Galaxy S21 series.

It will be interesting to see how Xiaomi and other Chinese OEMs convince their customer base, which they created by selling high-spec devices at relatively low ASPs, to part with larger sums of money that can afford them already popular and well-regarded premium devices.

It may be to this end that the Chinese OEMs have been trying to create greater brand differentiation, as can be seen between Xiaomi, Redmi and POCO; OPPO, OnePlus and realme; and vivo and IQOO.

Besides trying to increase ASPs in their existing markets, these vendors are also trying to expand into newer geographies, particularly Europe. While Xiaomi became the top player there in Q2 2021, OPPO too has done well. Its sponsorship of Euro 2020 and Wimbledon got it much-needed media attention in the region and helped its flagship, the Find X Series.

Nevertheless, Xiaomi, OPPO and vivo will need to work harder to increase ASPs to improve their profit margins in the long run. This is especially true for their new-generation foldable and rollable phones as well as for their flagships. In this, Samsung is already ahead as it focuses on reliable and consistent profit margin, an area in which so far only Huawei came close to challenging it. Therefore, we may see several more quarters of status quo.


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A Week of iPhone 12 Sales at US Carrier Stores

The new iPhone 12 and iPhone 12 Pro have now been selling in the US since October 23 and carriers are finally seeing more traction compared to the initial launch days. Here is the latest round-up from our research:

Demand is up: This is not a big surprise but should nonetheless be mentioned. Despite COVID-19 and still over 7.75 million people receiving unemployment benefits, stores are seeing greater interest by consumers compared to the iPhone 11 launch. There is a three-fold mix of reasons for this. 5G is becoming more of a pull for many consumers. All three carriers are now claiming nationwide 5G coverage. Carrier promos and deals are also helping since many consumers (both switchers and upgraders) are able to get a new iPhone 12 for free with select trade-ins. Lastly, the improved camera, A14 Bionic processor and increased base memory capacity, all are providing strong reasons to upgrade for many iOS users. This is true for both older generation iPhones (6,7,8 series) and newer iPhone X and 11 series owners.

Orders go online: Carriers are driving customers to their websites to purchase devices. We estimate that iPhone sales went over 70% online during this initial launch phase. AT&T stores have an automatic message telling people to go online to order a new iPhone since reps cannot take orders over the phone. Apple asked consumers to not stand in lines on the opening day of the launch. To keep consumers and Apple employees safer, the company asked consumers to order online or order online and then pick up in-store at a certain time to help stores comply with COVID-19 safety procedures.

iPhone 12 in stock, iPhone 12 Pro not: Almost all carrier stores have some variant of the iPhone 12 in stock. However, the iPhone 12 Pro is sold out or was never even available in stores for the launch. As noted with every iPhone launch, Apple has been keeping stock of higher-end devices for itself. Carrier store representatives are quoting delivery of the iPhone 12 Pro models by mid- to end-November.

iPhone XR and iPhone SE see slowdowns: It is not uncommon for iPhones to see slower sales during the lead-up to a new launch, which is what happened with the iPhone XR and SE. However, with the first week of sales for the iPhone 12 behind us, we are seeing increased weakness of the iPhone SE. The iPhone SE 2020 did not get a price drop, and with the new iPhone 12 Mini coming out, some people who want a smaller iPhone are waiting to get the iPhone 12 Mini.

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Five Observations from Last Week's iPhone 12 Launch

Apple officially began selling its newest iPhone 12 and iPhone 12 Pro last week. The iPhone 12 mini and iPhone 12 Pro Max hit the stores November 13. Long gone are the days of people waiting overnight to be the first in line to get their hands on the newest iPhone. Instead, Apple has opted to operate on an appointment-only basis due to the pandemic. Last year, Apple had the same system but on a partial basis. This year’s launch is unlike any other, with Apple betting big on its entry into the 5G market with the iPhone 12 line-up. Here are our top five observations from last week’s US launch:

  • The iPhone 12 Pro is a big favorite at the Apple Store: Our initial estimate for the launch day is that the iPhone 12 Pro is outselling the iPhone 12 four-to-one. This isn’t unusual for the first few days of an iPhone launch. The higher-end iPhones tend to sell more as the early adopters and Apple iPhone Upgrade Program subscribers skew towards higher-end models.
  • More upgrades from 2-year or older devices: While it is still early, more iPhone 12 and iPhone 12 Pro purchasers are upgrading from a device that is two or more generations older, such as the iPhone X series or the iPhone 8 series. The 5G upgrade becomes an enticing proposition for these consumers to have a device that is “future proof” for several years. In addition, while the iPhone Upgrade Program is still a big driver for initial iPhone launch sales, it seems to be less popular this year. A reason for this could be that people are still waiting for the iPhone 12 Pro Max and delaying their upgrade for a few weeks.
  • Carriers are seeing more interest for the iPhone 12 and switcher deals: Carriers tend to have a more limited selection of iPhones on the launch day. Apple likes to tightly control inventory during the launch week to steer consumers to its stores. Carrier store inventory checks in six US cities showed limited availability of iPhone 12 Pro devices. The iPhone 12 was in stock at more locations. Most carriers are quoting availability of the iPhone 12 Pro until mid to end of November. Consumers looking to upgrade did not have as many choices in carrier stores, but many still opted for the iPhone 12. Due to the great switcher offers currently available, we are also seeing more switchers at carrier stores.
    • AT&T switchers and upgraders can get a new iPhone 12 free with an eligible trade-in device.
    • Verizon is offering up to $800 for switchers via a $550 trade-in offer and $250 e-gift card with select unlimited plans.
    • T-Mobile switchers can get up to $850 for trade-ins of select iPhone 11 and XS series models.
T-Mobile Store iPhone 12 Promotions
A T-Mobile store sports an iPhone 12 promotional sign (right) at its launch.
  • The (limited) Apple Store traffic still outshines that of carrier stores and retailers: Some carrier stores did not open early for this Apple launch, but this was geographically dependent. East coast and west coast checks showed AT&T stores opened at 8 am while T-Mobile and Verizon kept their regular hours. Cities such as Denver and Boise, and west coast cities saw more carrier stores opening early at 8 am. Retailers like Best Buy kept their regular hours. Xfinity Mobile stores also had normal business hours. When consumers opted to go in-person, many chose to go to the Apple Store over their own carrier stores.
Apple Store iPhone 12 Crowds
Customers picking up their new iPhone and iPad devices at an Apple Store.
  • Online ordering with home delivery is up: We have previously reported how online sales have gone up to over 33% of total sales during the pandemic. While we are not seeing such a high increase in online sales anymore, it has certainly shifted more people towards ordering online and getting devices shipped to their homes. This hurts accessory sales and also prevents carrier representatives from suggesting other add-ons which lower ARPU. Online sales will also likely increase the need for care calls. Apple is also experimenting with Express Stores around the US and internationally to allow for faster, almost contactless pick-up of merchandise ahead of the holiday sales period.

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