updated 11:57 pm EST, Tue February 11, 2014
Including losses from others, Samsung and Apple take 120 percent
In a report that paints a grim picture for mobile phone stock investors, Raymond James analyst Tavis McCourt has told clients that "the great moderation of device growth is upon us," excluding China. McCourt believes non-Chinese vendors will see "little to no growth this year," and also pointed out that Apple and Samsung will continue to take more than 100 percent of the profits in the industry (possible when one includes losses from other vendors as negative profit).
According to the analyst, Android may be the top-selling smartphone platform, but this is not translating into success for most vendors. Apple is said to have taken 87.4 percent of profits (before interest and taxes) in the fourth quarter of calendar Q4, with Samsung taking 32.2 percent. "Because their combined earnings were higher than the industry's total earnings as a result of many vendors losing money in Q4, Apple and Samsung mathematically accounted for more than 100% of the industry's earnings," Investor's Business Daily explained.
The issue of losses appears to be growing. In 2012, Apple and Samsung took 104 percent of the total profits of the industry; by the end of 2013, according to McCourt, it has risen to 119.6 percent. On top of losses, smaller and even well-known vendors like HTC that are not making money will be faced with flattening growth in mobile phones, he added.
"Chinese-based vendors now account for 30 percent of industry revenue, and 40 percent of industry volumes, " McCourt said, "and although growth is still elevated at Chinese-based vendors, we suspect these vendors will slow in 2014 as well, as China's end markets for smartphones slow." He believes China-based vendors may have an opportunity to take share in emerging markets (such as China itself), but that Apple and Samsung will continue to be the only phone vendors that matter in the developed world.
As a result of the trend, more consolidation in the industry has already been seen: Microsoft is finalizing its deal with Nokia, and Google has palmed money-losing Motorola Mobility off to Lenovo. BlackBerry has signed a deal with Foxconn to make cheap mobile phones that are targeted at Indonesia and other fast-growing markets, and many of the remaining brands like LG and HTC rely on profits from other divisions to prop up their ailing smartphone fortunes.