Research in Motion, the maker of BlackBerry smartphones, may be losing market share, but it still has a large share of the profits, according to a research note issued last night from Deutsche Bank. The bank took a look at profits for the major smartphone makers and concluded that Apple and RIM were still sucking up two-thirds of the industry’s profits while selling only 10 percent of the overall handsets — the same stats it came up with six months ago, when it first ran this analysis.
Its conclusions have only been reinforced since then, as Samsung and LG reported lackluster results from their handset divisions, leading Deutsche Bank analysts to conclude that interest in phones with mid-tier features is rapidly shrinking. Folks either want a smartphone that doubles as a mobile computer of sorts or a low-end, cheap handset for phone calls and texting.
All of this leads us to make a few conclusions from the latest quarter’s results. We think the change that Apple has forced on the industry continues to play out. Hardware has become a commodity with heavy pressure on margins. Software is the only way for vendors to differentiate their products and as a result those with the best software platforms are pulling ahead. … . We increasingly see the handset space “barbelling”, with strong volumes at the low end and the high end, but little demand for products in the middle. Those mid-range feature phones used to be Samsung’s and LG’s bread and butter products upon which they built their operations. Those kinds of phones are vanishing from the shelves in the US, increasingly replaced by high-end smartphones subsidized down to mainstream prices.
The willingness of U.S. consumers to lock themselves into a two-year contract in order to pay $ 200 for a $ 400 or $ 500 handset creates a market dynamic that will help the country achieve a smartphone penetration rate of over 50 percent by the third quarter of next year, according to estimates from Nielsen. However, it also means that the largest carriers still have a huge say in what phones succeed in the U.S. market, a lesson Google learned when it tried a new retail model for selling its Nexus One. It was a great handset, but because Google sold it through its online store, it was difficult to get it in the hands of consumers, even with a subsidized price tag of $ 179, as opposed to $ 529 through T-Mobile.
The odd U.S. market has big implications for handset makers as it’s one of the larger markets for high-end devices — the right tie-up, such as the one between Verizon and Motorola — can revive an aging handset maker, but carrier interference such as AT&T’s lock down of the Android platform may turn off users to not only a device, but also an entire platform. The system also tends to reinforce the power of the two dominant carriers because they will continue to get the best handsets and thus keep attracting more customers — in spite of poor network performance or some of the highest prices in the industry.
Related GigaOM Pro research (sub req’d): What Happens When Data-Friendly Phones Come to Pre-Paid?
