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Apple's iPhone: Sliver of Market, Lion's Share of Profits

This article is more than 10 years old.

Facebook might be having trouble making money on smartphones but Apple has no such issues. As this astonishing graphic from Horace Dediu at Asymco illustrates, Apple captured an astounding 75% of the mobile phone industry's total profits while commanding only 9% of total unit volume in Q4 of 2011. Its share of industry sales stood at 40%.

As the graphic’s trend lines (which depict the average of the four trailing quarters) show, Apple has been improving in gaining market share while selling at premium prices and hefty margins. The math implies of course that most other players are either moving tremendous volumes or trying to enter the market for (at best) little marginal gain.

These numbers highlight the tremendous opportunity for Apple as smartphones comprise an ever larger percentage of overall phone sales and as it expands its geographical footprint. It also reinforces the position that I took in my previous post, which argues that Apple should be focusing its resources on capturing tremendous growth opportunities, rather than paying substantial dividends from its cash holdings.

The primary risk for Apple (and Apple investors) is that the company becomes complacent and assumes customer loyalty. As Motorola learned one time too many with its MicroTAC, StarTAC, and RAZR phones, mobile phones are a hits-based business.  Each of those Motorola models were the best sellers ever (up to their time), and each was followed by near-death swoons when Motorola could not produce comparable sequels. Moore's Law guarantees that today's best-selling phone is tomorrow’s dinosaur, and staying in the lead requires a continual stream of hits.

Another challenge for Apple will be how it balances market share and profitability as technology and market developments offer it opportunities to become the dominant player, as opposed to “just” being the premium one.

There are nice problems to have—but not ones to take lightly!

Do you think Apple should aim for the largest market share, or aim instead to capture the bulk of the industry profits? Can it do both?  Please share your comments below.

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Amazingly enough, Apple’s long-term outlook is even rosier when it comes to the tablet market. I’ll cover that in an upcoming article. To get a notice of it, follow me here at Forbes or on Twitter.