Why Apple, Samsung's phones sit atop piles of cash (FAQ) - CNET (blog)

It's tough being in the mobile-phone business, if your name isn't Apple or Samsung. CNET looks at how the two swallowed up nearly all of the industry's profits.

Apple's iPhone 4S helped the company swallow up 80 percent of the industry's profit.

(Credit: Josh Lowensohn/CNET)

When it comes to making money in the smartphone business, Apple and Samsung have a license to print money, while everyone else is holding a hat out for handouts.

Apple and Samsung accounted for 95 percent of the industry's profits in the fourth quarter -- with Apple generating 80 percent by itself -- as the rest of the players struggle for the scraps. Canaccord Genuity analyst Mike Walkley said yesterday that their percentage could rise even higher in the first quarter.

Just five years ago, Nokia and Research In Motion -- two companies now desperately looking for a comeback -- were the ones gobbling up the industry's profits. The radical change in leadership illustrates the rapid shifts in the business, which is even more dependent than ever on consumer tastes and technical trends. Titans today are paupers the next.

So what happened? CNET puts on its financial cap and explains how two companies can eat up an entire industry's profit, and what that may mean for some of the players down the line.

Wait, so Apple and Samsung stole everyone else's profits?
Not exactly. Apple and Samsung were the most successful companies at selling handsets in the fourth quarter, particularly high-margin smartphones, so they were both able to record a healthy profit. The demand for their smartphones meant less demand and lower sales of rival phones made by the likes of HTC or Motorola, which translates into lower profits.

Besides Apple and Samsung, no other major handset manufacturer recorded a significant profit. Some actually posted losses for the period. And ultimately, it was really Apple that accounted for most of the profits, with its unique level of success.

How did Apple make so much money on its iPhone?
Apple was the real profit machine in the fourth quarter. That's thanks to its iPhone 4S, which commands the highest average selling price in the industry. The average selling price isn't the price consumers pay for their iPhone, which ranges between $199.99 and $399.99, based on the memory size. The price of the device is estimated to be roughly $300 to $400 more -- an expense that the carrier covers in exchange for the consumer signing a two-year contract.

While carriers pay similar subsidies to the other handset vendors, they aren't nearly as high as Apple's payment. That's why a lot of the wireless carriers reported weaker results in the fourth quarter; they had to pay out huge subsidies to cover the large number of iPhones activated in the period.

Obviously, Apple generates more profits with each additional iPhone it sells. And it has sold a lot. The company is estimated to have sold 31 million iPhones in the fourth quarter, according to a J.P. Morgan research note issued today. Walkley said the iPhone outsold every other smartphone in AT&T and Sprint Nextel's lineups combined, and it was on par with every other Android smartphone combined sold by Verizon Wireless.

The iPhone's superior ability to turn a profit is illustrated by Apple's market share. Despite only nabbing 45 percent of total handset sales in the fourth quarter, it controlled 80 percent of the profits.

And Samsung?
Samsung is a distant second, but it can still boast of healthy profit. One large reason is the success of its flagship Galaxy S II line, which has been able to stand out in a crowd of so-called superphones running on Google's Android platform.

Despite its claims of a premium phone, Samsung doesn't command the kind of premium that Apple can get away with. The company instead leans on its own manufacturing capabilities and massive reach to ensure a profit.

It helps that a lot of the components found in a smartphone - from the display to the processor -- are made in-house.

Beyond the Galaxy S II, Samsung has been good at creating smartphones for different levels of consumers, from its flagship line down to more affordable models for the prepaid wireless carriers. The company's size and scale helps the company profitably serve each customer segment, something few others can emulate.

What happened to everyone else?
The fourth quarter happened to be a time of flux for several companies. Nokia was in the early stages of rolling out its Lumia Windows Phones. HTC had already warned that competition was starting to take its toll on its business. Sony was in the middle of taking full control of the smartphone business from Ericsson. Motorola Mobility was awaiting its acquisition by Google. LG was working through its own turnaround. Research In Motion, meanwhile, continued to cede its share, as people abandoned BlackBerrys.

The phenomenal success of the iPhone 4S in the period basically wiped out any hopes that any other smartphone would make a real impact with consumers. Companies were more reliant on lower-cost -- and less profitable -- feature phones.

Why is it so hard to make money in this business?
In general, it's fairly tough to make money in the handset business. Yes, the high-end flagship smartphone tends to do well. But unlike Apple, which has its limited iPhone line, the other handset vendors have large portfolios of products catering to different kinds of consumers.

The amount of research-and-development resources devoted to so many phones -- when so few end up being hits -- means a lot of risks taken that don't pay off. With the market so crowded, and pressure to keep packing in more expensive components constantly rising, vendors are under the gun to deliver, despite slimming profits.

In addition, the companies face competition from Huawei and ZTE, which offer smartphones with improving specs at a lower cost. Walkley noted that both companies were around breakeven and didn't factor into the share of the industry's profits.

Some analysts question whether Android players beyond Samsung can compete in the smartphone market. The last few quarters have seen most of the Android supporters -- HTC, Motorola, and LG -- dealing with continued struggles.

"The rich get richer, and the smaller guys struggle for relevancy," Walkley said.

Can the profit share shift back?
It's possible. The fourth quarter represented the launch of a new iPhone, which gave Apple a large onetime boost. With the iPhone hype settling, there's room for other handset vendors to increase their own profits.

A closer look at the HTC One X (photos)

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Nokia, for instance, has a chance with its Lumia smartphones launching around the world. In the United States, the Lumia 900 will launch with AT&T on April 8, and the carrier is promising a big launch.

HTC, meanwhile, has managed to win back some excitement for its line of One smartphones, particularly the One X.

What happens, if nothing changes?
If things don't change, a few of the companies won't be around in a few years. These are businesses that are in it to make money, and if profits can't be had, the industry will see either consolidation or companies waving a white flag.

Google is already acquiring Motorola. RIM's chief executive, Thorsten Heins, opened the door to a possible acquisition, though he stressed that he would prefer to go it alone.

With profits hard to come by, don't be surprised, if those end up being just the first of many indications that bigger industry shakeups are at hand.

'Apple Fever' to Push Stock to $1001 Within Year, Analyst Says - Bloomberg

Apple Inc. (AAPL), already the world’s most valuable company, will see its stock price reach $1,001 within 12 months, lifted by growth in China and the debut of a new television product, according to Topeka Capital Markets.

The new target, issued today by Topeka’s Brian White, is the highest among the 45 analysts tracked by Bloomberg and represents a 62 percent increase over the current price. The gains will be fueled by demand for the next iPhone, in addition to the expansion into China and the TV market, he said.

“Apple fever is spreading like a wildfire around the world,” White said in a report, which initiated coverage of the company with a buy recommendation.

Apple will get to $1,001 by introducing a TV within a year, as well as an upgraded iPhone that works with speedier wireless networks, he said. China Mobile Ltd. (941), the Asian country’s largest wireless network, will start carrying the iPhone within a year, White said, adding millions of new potential customers.

Apple’s stock also is getting a boost because of a relatively seamless transition since the death of co-founder Steve Jobs, he said. The stock has risen more than 60 percent since he died in October. Tim Cook had assumed the role of chief executive officer from Jobs the previous August.

“Steve Jobs’s health was such a fear that was hanging over the stock,” White said in an interview. “Now you’ve seen that Tim Cook is doing a good job.”

Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment on the report.

A Trillion?

Apple’s management should aim to become the first company to generate $1 trillion in revenue, a goal that’s achievable in the next decade, he said. Apple had sales of $108.2 billion in its last fiscal year, which ended in September.

A risk for Apple is the uncertainty over who will make critical decisions about future products, White said. Cook’s experience is with Apple’s supply chain and operations, and less with product development, the area where Jobs excelled.

The stock has already risen 53 percent this year, spurred by soaring iPhone revenue and the debut of a higher-resolution iPad last month. Apple’s market value is now $576.8 billion, far above the previous leader, Exxon Mobil Corp. (XOM) That company is valued at $410.4 billion.

Apple investors also are benefiting from a $2.65-a-share dividend, starting in July, and a $10 billion stock buyback plan. The company announced both initiatives last month.

White previously covered Apple for Ticonderoga Securities LLC, where his last price target was $666. The next closest prediction to his new $1,001 target is the $800 target of Morgan Keegan’s Tavis McCourt.

White said Apple can hit his target because its iPhone and Mac computers still have relatively low market share, giving them room to grow. He also foresees Apple introducing iPads with a smaller screen size, letting them compete more directly with tablet computers from Amazon.com Inc. (AMZN) and other rivals.

The much-anticipated television set, which Apple may introduce within a year, would create a new $100 billion market opportunity for the company, White said. China, meanwhile, offers some of the best growth prospects. Mobile-phone subscribers in the country with access to 3G wireless networks could reach 230 million by the end of this year, adding millions of new potential iPhone buyers, White said.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

Foxconn recruiter says next-gen iPhone arriving in June - rumor - Apple Insider

By Josh Ong

Published: 09:10 PM EST (06:10 PM PST) A Japanese-language TV program has recorded a Foxconn recruiter in Taiyuan, China as saying that Apple will release its next-generation iPhone in June.

TV Tokyo's "World Business Satellite" (WBS) show broadcast a report (Google translation) on Monday that included footage of a personnel recruitment office for Apple manufacturing partner Foxconn, as noted by Macotakara.

In one recorded scene, a woman asked a Foxconn recruiter how many people the factory is looking to hire.

"We're looking for 18,000 employees�for the fifth-generation phone," he said.

"Is that because demand is high for the 'iPhone 5?'" she asked.

"That's right. It will come out in June."

Though the iPhone 4S is Apple's actual fifth-generation iPhone, Chinese pundits have continued to refer to the upcoming sixth-generation handset as the "iPhone 5."

According to the report, Foxconn already employs 80,000 workers at its Taiyuan plant. The manufacturer has long been Apple's principal partner for producing the iPhone. Just last week, Apple CEO Tim Cook visited an iPhone production line at a Foxconn factory in Zhengzhou, China.

Foxconn made headlines last week when it announced that it was buying a 10 percent share of Japanese LCD maker Sharp. The deal prompted Monday's report from WBS, as the reporter was investigating struggles within the Japanese LCD panel industry and efforts by Korean and Taiwanese companies gain share as a result.

It should be noted that the June date allegedly provided by a Foxconn recruitment officer remains highly questionable. For instance, it's unclear how a low-level employee within the company would already know Apple's release schedule when the iPhone maker is notorious for its high level of secrecy.

The rumor also conflicts with multiple other reports that have suggested Apple's sixth-generation iPhone will arrive in September or October of this year. One recent unverified report claimed an LTE-capable iPhone is likely to show up in October.

iPhone Top Seller At AT&T, Sprint, And Verizon - InformationWeek

10 Top iOS 5 Apps

(click image for larger view and for slideshow)

The Apple iPhone 4S is the undisputed smartphone champ, according to data collected by Canaccord Genuity. The firm examined individual handset sales across the top four wireless network operators in the U.S. between December 2011 and March 2012. The iPhone leads at AT&T, Sprint, and Verizon, although not at T-Mobile USA, where it isn't available.

"Our March checks indicated the iPhone continues to extend its market share gains," wrote Canaccord Genuity analyst Mike Walkley in a note to clients today. "In fact, we believe iPhones are outselling all other smartphones combined at Sprint and AT&T and selling at roughly equal volume to all Android smartphones at Verizon."

Given the number of other smartphones that are available from both AT&T and Sprint, that's quite an impressive feat. AT&T alone sells more than two dozen smartphone models. Some of the most notable models are the Samsung Galaxy Note (which has reached 5 million units sold all by itself), the HTC Vivid, and the Samsung Galaxy S II Skyrocket. The iPhone 4S alone is selling more units than those two dozen smartphones' sales figures combined. At Sprint, its non-iPhone device lineup is aging a bit, as the company has slowed down the rate at which it introduces new products.

[ Verizon was right on target, despite initial doubts about the iPhone 4's success. See Verizon Wireless CEO Claims Strong iPhone Sales. ]

The top three handsets by carrier for the month of March are as follows:

-- AT&T: Apple iPhone 4S, Samsung Galaxy S II, Samsung Galaxy Note.
-- Sprint: Apple iPhone 4S, Samsung Galaxy S II, Apple iPhone 4.
-- T-Mobile. Samsung Galaxy S II, HTC Amaze, Samsung Galaxy S Blaze.
-- Verizon: Apple iPhone 4S, Motorola RAZR/RAZR MAXX, and Samsung Galaxy Nexus.

Despite the iPhone 4S's leadership at the top three carriers, Samsung is obviously hot on Apple's trail with its own models. Samsung isn't popular just in the U.S., notes Canaccord.

"Our global checks also indicated another quarter of strong market share gains for Samsung, particularly in Europe and Asia," wrote Walkley. "In fact, we believe Samsung's strong smartphone portfolio across all price tiers will result in Samsung's smartphone shipments increasing a remarkable 15%-plus sequentially during the seasonally weak March quarter."

The iPhone 4S led at AT&T, Sprint, and Verizon in every month between December and March. Only time will tell what effect the next generation of Android devices will have on the iPhones 4S's sales lead in the months to come.

iPhones, iPads, and Android devices are opening a new gateway for malware that old security tools can't completely close. Security pros must combine education, policy development, and the use of existing tools and new mobile device management systems to effectively balance mobile device risk with productivity rewards. Find out more in our Stop Mobile Device-Borne Malware report. (Free registration required.)

iPhone users rely on Wi-Fi more than Android users - CNET (blog)

According to a new ComScore study, iPhone users in the U.S. and U.K. tend to do more data-related tasks over Wi-Fi than those on Google's Android platform.

by Josh Lowensohn April 2, 2012 3:59 PM PDT

(Credit: Photo by Josh Miller/CNET)

Besides basic divisions in hardware and software, there are some major differences in the way iPhone and Android platform smartphone users ingest data, a new study says.

According to market research firm ComScore, iPhone owners in both the U.S. and the U.K. consumed more of their data over Wi-Fi and their carrier's wireless signal than smartphone users on Google's Android platform during the month of February.

As part of its Device Essentials study released today, ComScore said that 71 percent the U.S. users on iPhones use both cellular and Wi-Fi networks, versus 32 percent of Android users who used both as a means of connection. That left another 29 and 68 percent of users on iPhones and Android devices (respectively) that the firm says only connected to the Internet through their carrier's network.

Chart: Mobile and Wi-Fi Internet Connection Activity Across iOS and Android Smartphone Platforms in the U.S. and U.K. (Feb-2012)Description: A U.S. analysis of Wi-Fi and mobile Internet usage across unique smartphones on the iOS and Android platforms reveals that 71 percent of all unique iPhones used both mobile and Wi-Fi networks to connect to the Internet, while only 32 percent of unique Android mobile phones used both types of connections. A further analysis of this pattern of behavior in the U.K. shows consistent results, as 87 percent of unique iPhones used both mobile and Wi-Fi networks for web access compared to a lower 57 percent of Android phones.Source: comScore Device Essentials, February 2012Tags: 3G, Wi-FiAuthor: comScorecharts powered by iCharts

In the U.K, ComScore found considerably stronger Wi-Fi saturation among those it polled. That amounted to 87 percent of iPhone users using both cellular and Wi-Fi networks, versus 57 percent of those on Android. And before cracking jokes about iPhone users not ever leaving the house, ComScore says a mix of business and high-speed wireless infrastructure has led to those differences -- at least in the U.K.:

"In the U.K., the scarcity of unlimited data plans and higher incidence of smartphone pre-paid contracts with a pay-as-you-go data model likely contributes to data offloading among users wanting to economize their mobile usage," Serge Matta, comScore's president of operator and mobile solutions said in a statement. "In addition, the current lack of high-speed data networks in the U.K. might also lead users to seek out higher bandwidth capacity on Wi-Fi networks."

By comparison, Matta said that the U.S. offered "increased availability" of high-speed data networks, including 4G LTE, rendering Wi-Fi less important.

To break down this behavior by carrier, ComScore said that the largest contingent of smartphone owners to connect to both Wi-Fi and cellular networks in the U.S. were those on AT&T's network followed by Verizon and T-Mobile. In the U.K. it's led by Vodafone and trailed by Orange and Telefonica.

Nokia Goes After iPhone With Lumia 900 Ad Campaign - PC Magazine

• April 2, 2012 04:29pm EST

In advance of the Sunday release for the its new Windows Phone-based Lumia 900 smartphone, Nokia has kicked off an ad campaign that takes aim at Apple's iPhone.

The smartphonebetatest.com website features 30 Rock actor Chris Parnell biding his time in a smartphone beta test control center of sorts. A countdown to the release of the Lumia 900 is atop the site, while three videos at the bottom claim to go "behind the beta" testing for an unnamed phone that is clearly the iPhone. In "undercover" videos from 2007 and 2010, Apple executives dismiss a colleague who is concerned about the iPhone's fragile screen, low visibility in direct sunlight, and the iPhone 4's "death grip" (video below).

"Stop acting like a spoiled child and use the approved grip," a female exec says when her co-worker complains about his phone's decreased signal when it's held in a certain manner.

View Slideshow See all (7) slides

The fourth-generation iPhone was, of course, plagued by connection problems when users gripped it in a manner many considered to be most comfortable. Apple eventually offered users a free bumper that solved the problem and more recently, a class-action suit over the issue provided consumers with the option of that free case or $15.

A second video, dubbed "Outside," features the same female exec encouraging her co-worker to simply stay inside if he wants to avoid glare and screen problems. Nokia's Lumia line features an anti-glare LED display.

Finally, the execs seem unfazed when the co-worker complains about the iPhone's fragile state, accusing him of being a baby and arguing that a broken phone means consumers will just buy another one. After the release of the iPhone, a study found that the device was experiencing 82 percent more glass breaks than the iPhone 3GS.

Nokia is not the only company to go after Apple. In pushing its Galaxy line of smartphones recently, Samsung produced several amusing commercials that made fun of the hipster fanboys/girls who wait in line for days to get their hands on the next iPhone.

Samsung, however, has had much more success with its Android-based Galaxy S line of smartphones than Microsoft has had with its Windows Phone-based devices. The Lumia 900 is the first high-end smartphone for the U.S. to come out of Nokia's partnership with Microsoft for Windows-based smartphones, so there's a lot riding on this gadget.

Windows Phone has been well-received by those who have adopted the platform, as well as reviewers, but it has struggled to gain market share in the face of competition from Android and iOS. Apple sold 37 million iPhones during the fourth quarter of 2011, while Samsung sold 34 million smartphones. But Windows Phone had just 1.9 percent of the market in 2011, according to IHS iSuppli.

Many an analyst, however, have projected big things for Windows Phone in the years to come. The Lumia 900 launch could be a jumping off point for the rise of the mobile OS here in the U.S. What do you think? Do you have plans to check out the new smartphone? Let us know in the comments.

Pre-orders for the Lumia 900 started on March 30 and it will be available in stores on Sunday via AT&T for $99.99. The Lumia 900 features a 4.3-inch, AMOLED Clear Black display, which is the largest screen on a Lumia device so far. It's powered by a 1.4-GHz processor and runs on AT&T's super-fast new 4G LTE network. The phone's primary camera features a Carl Zeiss lens, with large aperture (F2.2) and wide angle focal length (28mm).

For more, see PCMag's hands on with the Lumia 900 and the slideshow above, and stay tuned for a full review.

For more from Chloe, follow her on Twitter @ChloeAlbanesius.

For the top stories in tech, follow us on Twitter at @PCMag.

How Apple and Google help police bypass iPhone, Android lock screens - CNET

If you're a cop with a mobile phone to search, here's how you can force Apple and Google to let you bypass those pesky lock screens.

(Credit: Josh Lowensohn/CNET)

Internal police documents reveal the legal processes that law enforcement agencies use to require Apple and Google to bypass the lock screens on seized mobile phones.

Training materials prepared by the Sacramento sheriff's office include a fill-in-the-blanks court order that, with a judge's signature, requires Apple to "assist law enforcement agents" with "bypassing the cell phone user's passcode so that the agents may search the iPhone."

It's more difficult to gain access to a locked Android phone. The document (PDF page 25) says that according to T-Mobile and Google, the only way to "unlock the phone is to have the Gmail user name and password." But Google employs good security -- presumably a so-called cryptographic hash for passwords -- and does "not have access to particular e-mail account passwords, as they are encrypted."

The solution is for police, with a judge's approval, to require that Google "resets the password and further provides the reset password to law enforcement." That will work -- but will also have the undesirable side effect, from law enforcement's perspective, of tipping off the account holder that his or her phone has been compromised by the cops.

Because these are court orders, when Apple and Google receive them, they typically have no choice but to comply. Neither company immediately responded to questions from CNET on Monday.

A law enforcement source in the San Francisco Bay Area has confirmed to CNET that Apple has for at least three years helped police to bypass the lock code, typically four digits long, on iPhones seized during criminal investigations.

The disclosure provides more details about the increasingly common police practice of searching mobile phones, which are often seized during an arrest. Last year's news that iOS stored logs of a user's approximate whereabouts -- something that Apple called a "bug" and soon fixed -- also highlighted how interested law enforcement has become in accessing mobile devices.

How to compel Google (if you're the cops) to give you access to someone's Android device. Click for larger image.

Over the weekend, the ACLU posted thousands of pages of documents about cell phone tracking its affiliates obtained through state freedom of information laws. Many police departments engage in "at least some cell phone tracking" without obtaining a search warrant from a judge, which the ACLU says violates Americans' Fourth Amendment privacy rights. (The undated iPhone-Android document was prepared by the Sacramento Valley High Technology Crimes Task Force, part of the sheriff's office, which did not respond to a request for comment.)

Police searches of seized mobile phones also can raise Fourth Amendment issues when done without a search warrant signed by a judge. Whether warrantless searches are legal is still an unresolved question: the U.S. Supreme Court has not ruled on the topic, but in 2007, the Fifth Circuit concluded that police were permitted to conduct a warrantless search for call records and text messages during an arrest.

The Obama administration and many local prosecutors argue that warrantless searches are perfectly constitutional during arrests, likening it to looking through an suspect's wallet or appointment book. Civil libertarians and privacy advocates have responded by saying that because our gadgets today store so much information about us, including correspondence and personal photos and videos, a search warrant should be required -- and some other courts have agreed.

It is possible for police to bypass iPhone and Android lock codes even without the help of the manufacturers.

A video from Swedish firm Micro Systemation that garnered some attention last week says their XRY forensics software will bypass "four digit pass codes" on many iOS devices. But it doesn't handle the iPhone 4S, the iPad 2, or the new iPad.

XRY will also perform "automatic rooting for 90 percent of supported Androids," Micro Systemation says. And "pattern lock decoding," as long as USB debugging is on.

Disclosure: McCullagh is married to a Google employee not involved with Android who is on leave from the company.