Apple and RIM – Why smartphone success isn’t just about market share

The iPhone’s initial successes in the smartphone market warrant at least a passing mention. In just a couple years’ time, Apple has managed to jump-start the touchscreen smartphone market and drive adoption into the mainstream. All the while, BlackBerry-maker RIM has been riding the smartphone wave all the way to the bank. Both Apple and RIM have significant smartphone market share, but in terms of the overall mobile phone market, neither company makes a big dent. So, it’s a good thing market share doesn’t always tell the whole story. Sometimes, it’s more important to look at a company’s operating profits.

When we look at the operating profits of companies like Apple, RIM, Nokia and Samsung, we see some really interesting trends. Deutsche Bank analyst Brian Modoff put together some charts to make this easier to see. A quick gander at the charts clearly shows that Apple and RIM are pulling down increasingly larger and larger shares of the mobile industry’s operating profits. Apple’s operating profits have risen from 3% in 2007, to 20% in 2008, and is expected to hit 31% in 2009. More impressive are RIM’s numbers, which claims 8% of industry operating profits in 2007, 19% in 2008, and is expected to pull down 35% in 2009. Samsung has also managed to grow its share of operating profits, going from 14% in 2008 to 19% in 2009.

Meanwhile, market leader (in terms of global cellphone shipments) Nokia has been seeing its share of operating profits dropping sharply. Nokia boasted 64% of the industry’s profits in 2007, which dropped to 57% in 2008, and is projected to be just 32% in 2009. The numbers tell a not-so-surprising story – the smartphone sector is growing like wildfire and trend-setters Apple and RIM are leading the charge.

While RIM and Apple are still growing their relatively small share of the global cellphone market, it’s more important to note that both companies are pulling down enormous profits that will likely fuel growth in the years to come. Nokia needs to fight back, and fight hard. As amazing as the smartphone might be, Nokia’s upcoming Nokia N97 flagship may not be enough to bring the phone maker’s profits back to 2007 levels.