Patentstreit zwischen Apple und Samsung
Photograph by Marcus Brandt — picture-alliance/dpa/AP

Here’s Why Only Apple and Samsung Know How to Profit Off Smartphones

Aug 23, 2016

If new data from research firm Canaccord Genuity is true, it's awfully hard to make a profit in the smartphone market—unless you're Apple or Samsung.

During the second quarter, Apple (aapl) generated a 38% operating margin on its iPhone sales, topping every other major smartphone maker, Canaccord Genuity analyst Mike Walker reported in a note to investors on Monday. That's three percentage points higher than Apple's operating margin in 2013 and down slightly from the 39% operating margin the company enjoyed in the first quarter of 2016.

Samsung, meanwhile, was able to nab a 17% operating margin on the sale of its many smartphones, keeping pace with its first-quarter performance. However, that figure is down from the 20% operating margin the company generated in 2013.

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The findings underscore how cutthroat the smartphone market has become—and how difficult it is for any company to make a sizable profit off smartphones.

Although Apple and Samsung appear to be doing well, they're by far the market leaders. Other companies, including Microsoft (msft), BlackBerry (bbry), and LG, appear to be cutting costs as much as possible in hopes of breaking out from the massive shadows cast by the iPhone and Samsung devices like the Galaxy S7 or Galaxy Note 7.

In fact, the analyst's findings show that Microsoft's operating margin in the second quarter was -22%, which is actually an improvement compared to all of 2015, when its operating margin on smartphone sales stood at -32%. BlackBerry, meanwhile, is losing about 3% on the sale of its smartphones. HTC also had trouble during the second quarter, posting a -22% operating loss on its smartphone sales.

This all amounts to potential issues for vendors not named Apple or Samsung. Namely, Canaccord found that Samsung's and Apple's ability to generate profits on its smartphones essentially pushed aside all other companies.

According to Canaccord, Apple generated 75% of all the smartphone industry's profits in the second quarter. Samsung was able to generate the rest of the market's profits. Every other company either didn't make a dime on smartphone market last quarter or lost money.

That begs the question as to why companies would continue to compete in the smartphone market. Over the last few years, after all, Apple and Samsung have been gobbling the smartphone market's profits, not leaving much behind for its competitors.

However, profits aren't everything. For some companies, like Microsoft, getting into the smartphone business gets users onto its Windows operating system and potentially using cloud-based services like Office 365. HTC, meanwhile, might be using its smartphones to get users to its wearables and virtual reality headsets.

Still, it's hard to believe those companies wouldn't like to generate at least some profit from their smartphones.

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Canaccord Genuity's data is based on information it collects from the company's financial statements as well as its own estimates—so it's possible that some of its data could be askew, depending on how its estimates factored into the findings.

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