Why Smartphone Market Share Numbers Will Fool You

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

In the hype-filled world of the tech sector, there are lies, damned lies, and market share statistics.

No, the market share numbers themselves are mostly legit: Industry research firms such as Gartner, IDC, and Strategy Analytics put a lot of effort into estimating unit shipments of PCs, cell phones, servers, and other kinds of tech hardware from leading manufacturers with a reasonable amount of accuracy. But those numbers often bear little relationship to a manufacturer's share of an industry's revenues, never mind its profits.

Nokia's strong market share ...
There's probably no better example of how deceptive industry market share can be when it comes to judging a company's financial strength than Nokia (NYSE: NOK  ) . If your opinion about the strength of Nokia's mobile phone business in recent years was based only on market share numbers, which are typically based on unit shipments, you'd probably think Nokia has been doing a pretty good job of weathering the competitive challenge posed by Apple's (Nasdaq: AAPL  ) iPhone, Research In Motion's (Nasdaq: RIMM  ) BlackBerrys, and a variety of phone manufacturers relying on Google's (Nasdaq: GOOG  ) Android. For the first quarter of 2010, IDC estimated that Nokia's share of global mobile phone shipments stood at a healthy 36.6%. That's only slightly below the 38.2% share IDC gave to Nokia for the whole of 2007, and actually above the 34.2% assigned to the company for 2006.

Meanwhile, though Nokia's share of the smartphone segment of the mobile phone market took a hit in 2008 -- a year in which iPhone and BlackBerry sales really took off -- market share numbers suggested that the company had been holding its own in the following quarters. Research firm Canalys estimated that Nokia's share of global smartphone unit shipments in Q1 2010 amounted to 38.8%; this was roughly even with the 38.9% share Canalys estimated for Nokia for Q3 2008, and translated into 38% smartphone unit shipment growth for the company during this time frame.

... And slumping profits
But alas, those healthy market share numbers completely sidestep the fact that Nokia's mobile phone revenues in recent years didn't come close to keeping up with its unit shipments. From the first quarter of 2007 to the first quarter of 2010, the average selling price (ASP) for Nokia's phones fell more than 30%, from 89 euros to 62 euros, as its sales became increasingly slanted toward cheaper models targeting developing nations. And though Nokia has only recently begun breaking out its smartphone ASP, we know that, just between first quarter 2009 and 2010, this number fell by more than 18% to 155 euros -- less than half of the sky-high selling prices reported for the iPhone and high-end Android devices such as the Motorola (NYSE: MOT  ) Droid X and HTC EVO 4G.

Thanks to this massive drop in ASPs, revenues for Nokia's "Devices & Services" division plummeted by more than 28% from first quarter 2008 to 2010. And in an industry where a disproportionate share of gross profits come from sales of high-end smartphones and other costly devices, Nokia's ASP drop produced a stunning 57% fall in the division's operating profit during this time period.

From that angle, it becomes obvious that Nokia sure wasn't holding its ground in the mobile phone market in recent years -- and especially not in the pivotal smartphone segment. The performance of Nokia's stock price of late -- its shares are down over 60% during the past 24 months, compared with a drop of less than 10% for the Nasdaq -- show just what a huge mistake it would have been for investors to hold onto Nokia shares because its unit shipment share looked healthy.

Apple the profit-margin king
Just as cell phone market share numbers painted a rosy picture of Nokia's business, they didn't begin to do justice to the enormous profits Apple has raked in from iPhone sales from 2007 onwards. Though Steve Jobs & Co. still haven't joined the ranks of the world's top five phone manufacturers in terms of unit shipments, one recent study estimated that the iPhone's phenomenal ASPs and profit margins translated into Apple possessing 48% of the industry's earnings before interest and taxes (EBIT) during the second quarter of 2010.

Likewise, anyone relying on PC market share data to judge the strength of Apple's Mac business would also be selling the company short (figuratively, if not literally). With Mac sales historically skewed toward high-end computer buyers, Apple's PC ASPs and profit margins have long been well above industry averages. And over the past couple of years, this gap has grown even larger due to the fact that Apple has stayed out of the rapidly growing netbook market, choosing instead to offer the iPad as a netbook alternative.

Thus, while Apple's Mac sales account for little more than 4% of the PC industry's global unit shipments (based on the company's data and IDC), a report from Deutsche Bank estimated that Apple took in 35% of the industry's operating profit in 2009 -- easily outpacing unit shipment leaders Hewlett-Packard (NYSE: HPQ  ) and Dell (Nasdaq: DELL  ) , along with everyone else.

Of course, the huge returns delivered by Apple's shares in recent years have been ample proof of the company's status as a giant money-maker. But anyone who was judging Apple based on market share data from the likes of Gartner and IDC would have deemed it overhyped and overpriced, all the while deeming Nokia to be a screaming bargain.

That's as good an argument as any for why poring over market share data can be harmful to an investor's financial health -- at least when it's done without maintaining a healthy sense of perspective.

Fool contributor Eric Jhonsa has no position in any of the companies mentioned. Google and Nokia are Motley Fool Inside Value selections. Google is a Motley Fool Rule Breakers pick. Apple is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Google. The Motley Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 29, 2010, at 11:03 PM, alexkhan2000 wrote:

    It's an age-old question, isn't it? Sell a lot of stuff and make less with low margins or sell a lot less and make a lot more with high margins? I'm sure most would prefer the latter but how many can really pull that off? All this market share talk about Android phones getting more and more units sold is so overblown and overrated. How much is Google really making through this (the ads generated since they don't make a penny with the Android OS itself)? How about all the phone vendors like HTC, Motorola, Samsung, etc. who will have to beat each other up with cheaper phones?

  • Report this Comment On August 30, 2010, at 12:50 AM, purpleyogi wrote:

    Just about 3 years back Nokia was generating 40%+ of the mobile phone EBIT. I believe this a cyclical business and it takes about 3 years to get a new player, when the consumers get tired of the leading product of today. Remember before Nokia it was Motorola....

  • Report this Comment On August 30, 2010, at 8:44 AM, mrbobke wrote:

    I think there are a couple of things happening here: first, market share for Nokia in the US is very low, so the global numbers are not representative of the US situation. Second, Apple has a disproportionate share of voice in this space, much out of sync with its market share. Not sure there are any bargains to be had with Apple stock. But a brand that has a commanding global market share could be interesting...

  • Report this Comment On August 30, 2010, at 12:25 PM, BR14 wrote:

    "How much is Google really making through this (the ads generated since they don't make a penny with the Android OS itself)?"

    They don't really care, it's not margins on a device they're interested in (though they'll have to charge per unit shortly to cover Java licensing costs). Or ad revenue either - though thats always welcome.

    They take your Android usage data and provide market data to corporations who are desperate to better target their marketing spend. And make a healthy profit doing so.

    Apples margins may be terrific now, but just like Nokia and RIM they'll be hit when their "state of the art" (a questionable label) devices are superceeded in the marketplace by someone elses bright new invention.

    At that point they'll just be another player. There are a significant minority of people that are Apple believers who will stay, but the rest of the market will be off to something else. Already happening with some iPhone 3G users.

    Finally, the price you pay for your cellphone often bears little relation to the price charged to the manufacturer. If you pick up a BlackBerry for $99 chances are the carrier is covering the other $200 plus.

    The carrier ties you into a multi-year contract and is guarenteed to make back the subsidy within a few months.

    What is generally ignored by analysts is the complete stranglehold on the smartphone market by a few key players.

    Carriers hold the key. Ironically the price of iPhones on all major US carriers will probably fall once AT&Ts

    exclusivity deal ends since to sell through Verizon Apple will have to cut its margins.

    Apple will have to play ball with carriers eventually, because right now a device without coverage makes a useful paper weight.

  • Report this Comment On August 30, 2010, at 12:45 PM, Aeoran wrote:

    Oh look, another posting by InfoThatHelp based on his personal sentiments instead of facts that can withstand scrutiny.

    Here's a far more unsentimental analysis, which suggests a different way to assess the situation:


  • Report this Comment On August 30, 2010, at 3:56 PM, jameskatt wrote:

    Profit is King.

    Apple is the King of Profit.

  • Report this Comment On August 30, 2010, at 4:46 PM, ConstableOdo wrote:

    Nokia is done for and it appears that RIM is ready to follow. How can RIM sell so many smartphones and yet the share price keeps dropping faster by the quarter? There's nothing more that RIM can do. They're on all the carriers and have offered BOGO to consumers. Who would have thought that the BlackBerry makers would go from WS darling to WS whore in just over a year. Investors have given up on RIM. Exactly who is making money from smartphones? Not Motorola. Not RIM. Not Nokia. Not Sony. Not LG. Just Apple and HTC. What a crappy mobile industry. Companies are just pouring money down the toilet and getting nothing in return for investors.

  • Report this Comment On August 31, 2010, at 9:12 PM, alexkhan2000 wrote:


    Sure, I agree that Apple can't keep up this profit margin but one only needs to look at the PC industry to see the same pattern. Apple's global share of PC units is around 4% but the share of the profits is around 35% and, as we all know, the PC industry is a mature one and Apple's profit share has only been growing.

    The fact of the matter is that there are a sizable number of people out there (but a lot less than the majority) who want an alternative from the mass market mainstream and Apple is that alternative. Whether that's non-Windows or non-Android open source, it doesn't matter. People are willing to pay a premium for that non-mainstream alternative and that's the space that Apple plays in all alone.

    It's quite obvious that Apple would rather have 10~20% market share in terms of units shipped but have 30~40% of the profit share than vice versa. Wouldn't you?

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1284277, ~/Articles/ArticleHandler.aspx, 10/26/2016 3:51:13 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,215.74 46.47 0.26%
S&P 500 2,139.88 -3.28 -0.15%
NASD 5,252.68 -30.72 -0.58%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 3:35 PM
AAPL $115.25 Down -3.00 -2.54%
Apple CAPS Rating: ****
BBRY $7.26 Down -0.02 -0.21%
BlackBerry CAPS Rating: *
DELL.DL $0.00 Down +0.00 +0.00%
Dell CAPS Rating: *
GOOGL $820.94 Down -7.61 -0.92%
Alphabet (A shares… CAPS Rating: *****
HPQ $13.92 Up +0.02 +0.11%
HP CAPS Rating: ***
MSI $73.66 Down -0.50 -0.67%
Motorola Solutions CAPS Rating: ***
NOK $5.17 Up +0.20 +3.92%
Nokia CAPS Rating: **