Report: Apple, RIM squeeze huge smartphone profits

Smartphone profits are big for Apple and RIM, says the Wall Street Journal, thanks to hefty subsidies from cellphone carriers.

Apple and Research In Motion bring in big bucks from their smartphones, thanks in large part to heavy subsidies from the cellphone carriers, says a report in Monday's Wall Street Journal.

Last year Apple and RIM made up only 3 percent of global cellphone sales, but took in 35 percent of operating profits for the market, according to Deutsche Bank analyst Brian Modoff. This year Modoff expects the cellphone market for the two firms to grow to 5 percent, and winning 58 percent of total operating profits, according to the Journal (subscription required).

The high subsidies charged by major players like Apple and RIM mean that consumers can pay as little as $100 for a smartphone. The iPhone brings Apple the biggest subsidy check at around $400 a phone, estimates Modoff. RIM's BlackBerrys earn the company around a $200 subsidy. In contrast, basic cellphones get a $100 subsidy.

The cellphone carriers pass on the subsidies to consumers in the form of higher prices for monthly plans, especially for smartphones that can browse the Internet and collect e-mail.

The market gains by Apple reflect a shift toward smartphones that are feature rich and easy to use, says the Journal. Smartphones make up only around 13 percent of global cellphone sales, but the market is growing. Between them, Apple and RIM scored around 32 percent of the smartphone market in the first quarter.

The windfall among Apple and RIM comes at the expense of other players, says the Journal. Nokia, once the top smartphone maker, has been hit with a declining market share and lower profits. Sony Ericsson also is hurting, reporting a loss for its fourth quarter. Companies like Palm, Acer, and Dell also face an uphill battle breaking into a smartphone market dominated by Apple and RIM.

About the author

Journalist, software trainer, and Web developer Lance Whitney writes columns and reviews for CNET, Computer Shopper, Microsoft TechNet, and other technology sites. His first book, "Windows 8 Five Minutes at a Time," was published by Wiley & Sons in November 2012.

 

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