APPLE, RIM outsmart phone market

Mint
No wonder they are called smart phones. Not only can these fancy phones send email, get directions and play music, they can generate huge profits for their makers.

At least for iPhone's manufacturer Apple and BlackBerry's Research In Motion. The two accounted for only 3% of all cellphones sold in the world last year but 35% of operating profits, according to Deutsche Bank analyst Brian Modoff. The disparity will become even starker this year when, he estimates, the two will take 5% of the market in unit terms but 58% of total operating profits.

The two companies' outsize share of profits underlines the shift in the wireless industry toward feature-rich devices accenting easy-to use software and away from an emphasis on hardware.

Smart phones account for only about 13% of total cellphone sales globally, but the segment is growing, despite a drop in the broader cellphone market. Apple and RIM had about 32% of the smart-phone market between them in the first quarter, estimates IDC. Underlying the winners-take-all nature of the market are fat subsidies from phone carriers, particularly in the U.S., which lets manufacturers maintain hefty average selling prices even as consumers pay as little as $100 a smart phone--not much more than for many basic phones. The higher subsidies reflect the carriers' ability to charge higher monthly plan prices for phones that can easily surf the Web or handle email.

The iPhone, which is exclusive to AT&T and whose users are the heaviest Web surfers, draws the fattest subsidy, at about $400 a phone, Modoff calculates. BlackBerries draw subsidies averaging $200 from U.S. operators. Basic cellphones get a $100 subsidy.

Manufacturers of basic phones make virtually nothing, unless they have enormous scale. Nokia, the industry leader, manufactured 46% of the units sold last year but earned 55% of the profits, Modoff calculated.