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Hail the new smartphone kings Apple and Samsung - Q2 earnings recap

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Hail the new smartphone kings Apple and Samsung - Q2 earnings recap
We had a major shift last quarter, especially in the world of smartphones. The trend has been lurking in the shadows for a while, but the change of guard became glaring in Q2. Only four companies out of the popular cell phone makers are actually making money now – Apple, Samsung, HTC and RIM - and the first two both surpassed Nokia as the smartphone volume kings, for the first time in 15 years, since the Nokia 9000 Communicator was invented. 

Looking at the pie charts below, Nokia's market share destruction over the course of a year seems bad, but the huge decline over just one quarter is what's genuinely troubling.

Hail the new smartphone kings Apple and Samsung - Q2 earnings recap
Hail the new smartphone kings Apple and Samsung - Q2 earnings recap
Hail the new smartphone kings Apple and Samsung - Q2 earnings recap

Another important takeaway is the demise of the featurephone, for the first time since Q3 of 2009. Research companies peg the decrease of "normal phone" shipments at around 4%, for the benefit of that Swiss Army knife of gadgets - the smartphone. Individual companies, like Samsung, Nokia and LG, are also reporting that featurephone sales in their portfolio have diminished for the sake of phones with Android, Symbian, bada OS or Windows Phone 7, and this reflected positively on the average selling price (ASP) metric.

The biggest surprise, since we are getting accustomed to these "blowout" quarters from Apple of late, actually came from Samsung, so let's start with the world's second largest manufacturer by volume.


Samsung 

Samsung stopped reporting hard numbers about handsets sold or ASPs, speaking instead in cryptic phrases like "high 10% increase". Samsung's Investor Relations chief said: “As competition intensifies, there are increased risks that the information we provide may adversely affect our own business”. Rumor has it that the legal spat with Apple is the reason that Samsung stopped reporting exact quantities of smartphones, featurephones and tablets sold, or pinpointing the ASP.

That is why the numbers are relevant for the whole portfolio, tablets included, which might slightly skew the phone numbers, but not by much, as we can't imagine that Samsung managed to sell many millions of Galaxy Tabs in the quarter. Moreover, the slates' ASP could be considered similar to this of high-end phones like the Galaxy S II, so the same goes for Motorola, LG and RIM's tablets, since the numbers reported didn't hover above mere half a million shipments anyway. One exception has been the iPad, which shipped quite a lot, so we are including it separately for illustration. 

Using different ranges of calculation for Samsung's smartphone shipments, the number can be pegged between 17.3-19.2 million handsets - even the low range is more than Nokia's 16.7 million. Here comes the kicker - compared to Q2 2010, when we had 3.1 million Samsung smartphones, now the company's number comes at the astonishing 550+% increase. This is a real tribute to the success of its excellent Galaxy line of Android smartphones that was introduced last year, and further proof that innovative home-made technologies like the Super AMOLED display and ARM-based chipsets are really making a difference with consumers.  
 
Samsung also reported its highest operating margin in recent years, of 13.7% - as you can see in the chart below, its OM has been increasing, signaling a healthy product mix. In the third quarter, with the Samsung Galaxy S II eventually appearing on US carriers, and people holding off for the next iPhone, Samsung might even surpass Apple in smartphone sales.

Hail the new smartphone kings Apple and Samsung - Q2 earnings recap
 

Apple

We can write volumes about its record quarter, but we'll say just two words - Greater China, which brought in $4.8 billion of revenue, surprising even Tim Cook. The streets of Beijing are flush with new German and Italian luxury cars, the Nanjing Road shopping district is booming, and the eager to show off Chinese are evidently warming up to Apple's brand image. We can only imagine what will happen when China Mobile and China Telecom with their many millions of subscribers start selling the next iPhone.

In what is becoming a tradition, Apple hijacked 2/3 of the profits in the phone industry with only 6% of the market share, and there doesn't seem to be anything on the horizon to prevent this from happening again in the second half of the year.

Hail the new smartphone kings Apple and Samsung - Q2 earnings recap


Nokia 

"Elopocalypse now" is a good title by the media for what is going on at the world's largest cell phone maker. Afraid that the Nokia board might lean to something else than Windows Phone, like Android, or stay the course with Symbian and MeeGo, Elop announced the WP switch prematurely in Q1, and the destruction of trust in the brand really showed in Q2, when Nokia reported a loss. 

Perhaps worried about Symbian support and feeling the heat from affordable Android handsets, people stopped buying Nokia’s smartphones to the tune of 34% nosedive in units sold for just three months, from 24.2 million in Q1, to 16.7 in Q2. The 15% drop in feature phone sales can be somewhat attributed to an overall shift towards smartphones, but the smartphone slump is mostly due to the Nokia Windows Phone announcement made a good year before a full portfolio of those hits the market.
 
On the other hand, Windows Phone was probably a good move, considering all the litigation against Android going on, just its announcement was very ill-timed. Nokia will pay $15 a license to Microsoft, but have special treatment and cash outlays from Redmond as well, so it should do better in 2012. On the other hand, Nokia got more than $600 million of something it calls "IPR royalty payment", which is probably the lump sum Apple paid to settle the patent litigation, and will be getting royalties for the rumored $11.5 from each iPhone sold in the future, so, ironically, it has every reason to encourage Apple's sales, considering its smartphone margin was negative for the quarter.


RIM 

As usual, RIM proved that the rumors about its death are premature - it still commands pretty good operating profits and margin, which used to be second only to Apple, but HTC seems to have surpassed it in Q2 as far as margin goes. Its quarter ended in May, so we are using the official numbers for RIM’s results, covering March-May, without trying to guesstimate June. It’s also worth mentioning that RIM has $3 billion in cash, which, along with the 11% reduction in workforce means that the company has every chance to turn the corner, and live happily in the niche it has carved for itself over the years.


HTC

Only good words can be said about the Taiwanese in Q2. HTC nailed another record quarter, surpassing RIM for the second operating margin place after Apple, and reporting $349 ASP, again second after the fruit company. Moreover, its business growth seems unstoppable, doubling the number of shipped handsets to 12.1 million, and even slightly increasing its operating margin to 15.5% at that.

Its patent litigation woes, however, might not end without some sort of settlement, and it felt compelled to buy S3 Graphics for $300 million as a pure patent play, which inevitably reflects on the financials.

Hail the new smartphone kings Apple and Samsung - Q2 earnings recap


LG 

LG's shipments slightly grew compared to Q1 - a traditionally slow quarter - to 24.8 million handsets, which means that the third largest cell phone manufacturer commands about 7% of the market. Apple is breathing down its neck, though, and in the next quarters could very well become number three in volume itself. LG's revenue was up 11% compared to Q1, and its loss has shrunk both QoQ and year-on-year, thanks to higher ASP due to rising smartphone sales, and measures to cut down on its fixed costs. 


Sony Ericsson

The Japanese promised cool Android handsets with plenty of support, unlike last year, and they are delivering with phones like the Xperia arc. Sony Ericsson had 11% of world’s Android market and revenue, but the company was hugely impacted by the earthquake and tsunami in March, and said it would have shipped 1.5 million phones more if not for the wrath of Mother Nature. As a result, its operating profit and margins were negative for Q2, but we expect this trend to reverse in the current quarter. 


Conclusion

The main take from the quarter that ended June for us is not that Apple and Samsung outpaced Nokia’s smartphone volume for the first time. Nor is it the fact that Apple made $10 billion largely leaning on a year old phone, its iPads, and their increasing sales in Asia, which shows a huge potential for expansion, and sent the stock above $400 for the first time. 

What grabbed our attention is Samsung’s 500+ % smartphone growth – it is truly astonishing what Samsung is doing here, and these sales are probably coming mainly out of Nokia's pockets, although analysts are saying that the Koreans could have capitalized on Nokia's troubles even more.

Samsung might be turning into Apple’s main competitor and a genuine threat, which explains all the legal skirmishes Apple is waging against it. With this rate of growth, and the remarkable Samsung Galaxy S II entering more markets, including the US this quarter, Samsung could very well surpass Apple as the smartphone leader in Q3. As for the holiday quarter - it’s anyone’s guess, considering the next iPhone will likely be hitting shelves in September/October.

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1. chocolatebear76 posted on 06 Aug 2011, 17:03 2

the competition is buzzing! so i suggest they keep up on this domain rather than in a court room,it's been rediculous lately

Reply

2. Plong (unregistered) posted on 06 Aug 2011, 18:08 6

I wonder why people love this android phones...this phones are useless...good phones but poor battery life...we all know that...very poor battey life...people who owns this phones are stupid..,its not mobility!!!!better have a solar charge in your bag pack when you have an android....hahahahaha

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7. biophone posted on 06 Aug 2011, 19:39 3

Everyday people are trolling :(

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9. The_Miz posted on 06 Aug 2011, 20:44 8

Poor battery life

Poor update consistency

Poor ways of managing data since Android phones are data hogs

Poor security and stability

Poor choice of apps

Poor build quality of phones

Seriously lol, I can keep going on and on on why Android will always be second best and how its fans overhype a Linux ripoff.

Reply

11. LMAOMIZ (unregistered) posted on 06 Aug 2011, 20:49 4

miz is one dumb kid honestly, it is just a phone get over yourself just go stick the iphone up your butt already and be done with honestly WHO CARES GET A LIFE.. and Plong please learn how to write please go back to school.. ok thank you

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17. zuno gyakusatsu posted on 07 Aug 2011, 00:46 7

Your telling him how to write? Lol! Have you read your own comment?

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18. PeterIfromsweden posted on 07 Aug 2011, 06:17 1

"Android will always be second best "
Youre wrong there...
bada is the best OS, followed by MeeGo, followed by WebOS, followed by Symbian, followed by Android, followed by IOS, followed by WP7 !

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20. wassup posted on 07 Aug 2011, 07:11 3

buahahahahahahaha in your dreams son, bada is nothing mote than a feature phone OS. Bada is just another cash-cow for samsung, even though it doesn't have a lot of users.
its in this order- Android, iOS, BlackBerry, Symbian, Web OS.
Bada and Meego aren't even big players in the phone world.
WTH? meego isn't even out yet!

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22. haikallp (unregistered) posted on 07 Aug 2011, 09:27 4

no, BB isnt number 3..its market share is falling as we speak..its a 'fashion statement' os that does not bring anything innovative..WP is number 3

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3. chapin (unregistered) posted on 06 Aug 2011, 18:25

hey you damm ass i phone suks that show you i many damm people we have that owen the i phone

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4. richardyarrell2011 (banned) posted on 06 Aug 2011, 18:36 7

It has always been known throughout the smartphone world that iphones are for DUMMIES people with NO KNOWLEDGE of exactly what the capabilities of a smartphone really is. Android devices regardless of the manufacturers are computers not every android devices is built the same but android devices HAVE NO LIMITATIONS. Iphones are basically good for music meaning itunes and picture taking otherwise why would anyone who is into technology rather they understand OS platforms or rather they are a computer geek why would anyone like that want a iphone??? My EVO 3D and my past EVO 4G makes the iphone LOOK USELESS and WEAK...As stated above IPHONES ARE FOR DUMMIES.......And trust me there appears to be many DUMMIES in this world....

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6. biophone posted on 06 Aug 2011, 19:37 8

And it appears you are one of them. GTFO FANBOY!

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5. DAMN!! (unregistered) posted on 06 Aug 2011, 18:43

cool story bro

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8. dionddc posted on 06 Aug 2011, 20:02 1

Android has more market share than iOS. Great news Phone Arena.

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10. The_Miz posted on 06 Aug 2011, 20:44 5

You wish

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12. BenCjamin posted on 06 Aug 2011, 21:07 3

You know it! check the stats you ignorant fool.

Reply

14. biophone posted on 06 Aug 2011, 22:10 6

android smartphone market share is larger then iOS. However iOS is bigger then android if you consider the entire scope of both platforms which includes tablets and the iPod touch. So name calling isn't necessary considering technically your wrong. Taco probably will tell you this anyway.

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21. wassup posted on 07 Aug 2011, 08:13 2

we are talking about smart phones, not MP3 players and tablets.

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23. biophone posted on 07 Aug 2011, 09:40 4

When you say android has more market share technically he is wrong. If he said smartphone then he is correct. BenCjamin called him ignorant when technically he is wrong.

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35. remixfa posted on 08 Aug 2011, 07:03

Anyone ever pull up share statistics when including ipod touches? I havent seen a link yet. You guys may be right about that, but I want proof!! :)==

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26. taco50 (banned) posted on 07 Aug 2011, 10:29 4

I don't have to since you didi lol. What a nonsense comment. "android has more market share". What does that have to do with the article.


Dionddc is mostly a worthless troll.

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13. remixfa posted on 06 Aug 2011, 21:43 5

ok, why is Apple and "ipad" as 2 seperate categories while samsungs tablets and everyone else's all get lumped up into 1 total? Apple won in profit anyways, but what.. ya had to make it look better than it was? If you were to put the "ipad" money in with the "apple" money it would still be in first place but it wouldnt be nearly the stretch that it is now. Kind of disingenuous dont ya think? If your going to do that, why dont you separate Samsungs dumb-phone margins from its smartphone margins and see how that looks.

I dont care about the placement, but this constant double standard for apple gets really annoying. They either lump all iphone sales into 1 category while seperating each android by name, or seperate ipad profit from iphone profit while everyone else is lumped together with their tablets and phones. Keep it equal. Thats all we ask.

Other than that its a

"if you havent had enough fanboy fodder this week, here is a recap to keep the boards going".. lol

Reply

15. biophone posted on 06 Aug 2011, 22:16 1

By separating them it makes apple products look worse doesn't it? You would be adding the profits of the iPad to the iPhone and the profit margin would be a lot greater. Im confused now great :(.

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16. p0rkguy posted on 07 Aug 2011, 00:37 1

By separating the iPad, iPhone and iPods, it creates the false illusion that they are different. The chart is trying to show that they are two completely different devices. (Apple iPhone, then you have the iPad) They created an over-sized iOS device with the same UI found on the iPhone and iPod Touch.

They might as well separate feature phone and smart phone sales by manufacturers.

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24. remixfa posted on 07 Aug 2011, 10:11 2

No, if you look at the profits from the iphone they are about 4x what the profits are on the ipad. By seperating the two, you allow apples profits to look much greater than they actually are. Iphones and iPads sell full retail (and to carriers) for a very similar price.

Did they still win? yea by far, so why seperate them out when no one else is seperated? It's just a double standard to make apple look even better, and it just gets tiring.

The same rules for everyone.

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25. taco50 (banned) posted on 07 Aug 2011, 10:26 5

Tough luck for fanboys like you. Apple dominates and it's well documented.

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28. taco50 (banned) posted on 07 Aug 2011, 11:56 4

iPhone profits are not even close to 4 times more than iPad. They have mostly the same components. Plus on bigger screen and minus on cell radios. Ipads do cost a little more to make but not 4 times more.

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29. remixfa posted on 07 Aug 2011, 12:18 3

wow, iDiot, can you read graphs? The iphone profits were well more than tripple of the ipads profits.

did i say "profit per unit" or "profits"?

hmm.. seems you will never learn reading comprehension.

iDiot iTroll.

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33. p0rkguy posted on 07 Aug 2011, 14:33 1

So by having mostly the same components, same OS, same UI excluding the screen and radios. They should be considered a different group?
The Apple iPhone is in the group "Apple iPhone"
The Apple iPad is in the group "iPad", not "Apple iPad", but "iPad". Thus creating the false illusion of a new device. Many other tech blogs are guilty of this also.

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27. taco50 (banned) posted on 07 Aug 2011, 11:45 4

so fanboys complain if sales are lumped together (iphone 3gs and 4) complain if they're separated such as here. Complain PA is biased when they're clearly not and just mostly reposting articles from other places.

If they had lumped in iPad with iPhone sales it would have looked like they outsold other manufacturers even more so you would have complained about that. Face you're only happy if Apple fails which is very rare.

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31. remixfa posted on 07 Aug 2011, 12:42 3

could u be a bigger troll?

Exactly how would apple fail if the sales were lumped together? they would still win by a healthy margin.

Iphone 3g and 4g were not seperated in this article... nor should they have been, all iphones and the ipad were seperated while no other manufacturer had that seperation between tablets and smartphones.. or smartphones n dumbphones.. or any separation at all

I realize your a dumb iBot, but even you should be able to recognize a double standard when you see it.

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19. PeterIfromsweden posted on 07 Aug 2011, 06:19 1

I liked the name they gave to Nokia. "Elopacolypse" : D
That is the perfect name for Nokia at the moment.
Lets fire Elop before he destroys Nokia.

Reply

30. isac417 posted on 07 Aug 2011, 12:23 4

iphone5 4G > GSII 3g

Reply

36. remixfa posted on 08 Aug 2011, 07:04

ha.. iSheep had these comments moderated and there isnt even anything more than PG in the comments.. waah.

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