The Smartphone industry has grown by leaps
and bounds since the launch of Google’s operating system Android. Android has
revolutionized the use and purchase of smartphones. It is because of the Android
smartphones that today we see smartphones in hands of every next individual. A
large number of smartphone making companies have evolved over the time. Though
Windows and Apple also have their own markets, Android is undoubtedly the King.
As and when the new version of Android is released, a competition arises among smartphones makers inIndia and other countries to offer the latest series of
smartphones with most innovative features.
At this point of time when India has
surpassed the US to become the second largest smartphone market, it is quite
obvious to believe that the majority of smartphone manufacturing
companies must be earning a profit in multiples. However, the reality tells a
different story.
A data from the research firm Canaccord
genuinely has revealed that apart from Apple and Samsung, no other company is
making profits from smartphone sales. The report revealed that apple generated
38% profit margin in the second quarter of 2016 through iPhone sales while the
Samsung gained 17% profits from smartphone sales in the same period.
On the other hand, other major leading brands
namely Sony, Nokia, Microsoft, Blackberry, etc. are cutting as much cost as
possible to come out of the shadow cast by the iPhones and Samsung’s devices
Galaxy S7 and Note 7. The findings also revealed that Microsoft operating
margin in 2016 was -22%, which was actually better than that of 2015.
Blackberry is also losing 3% on smartphones sales and HTC also faced trouble
with -22% operating loss on its smartphone sales. Lenovo is also running on a 10%
loss.
With these facts, it is quite clear that the smartphone
market is offering cutthroat competition to the smartphone makers and it has
become really tough to make a sizeable profit off smartphones. According to Canaccord,
Apple generated 75% of all the smartphone market profit in the second quarter
of 2016 while Samsung was grabbing the rest of the market’s profits. No other
company made even a dime on the smartphone market.
So, what on the earth is making these
companies sustain and continue making smartphones at the same pace? Why these companies are even competing in the
smartphone market. From last few years, it was only Apple and Samsung, who have
been gobbling the smartphone market’s profits, not leaving anything for their
competitors.
When the market analysts discussed on this
question, they came to a conclusion that most of the smartphone making
companies are manufacturing smartphones not for earning profits but to promote
their other business ideas, technical efficiency, and other products.
This was made evident with certain examples-
Companies
manufacturing smartphones to show their technical leadership:
Consumer electronics companies like LG,
Samsung etc. have a specific purpose of making smartphones. The smartphones
help these companies to expand their ecosystem of smart home, TV and car
gadgets. With smartphones, it becomes quite easier to advertise their products
in a ubiquitous and effective way. Other than this, smartphones also help to
flaunt the technical and engineering efficiency of the company through various
components. For example, LG chem is making batteries; LG display is making
advance phone displays. These products are combined in the LG smartphone such
as G-Flex. With these devices, they want to highlight their expertise in these
components and lure and convince OEMs to use LG parts. Similarly, Sony is also tapping this
opportunity through its Xperia smartphones. It has its own ecosystem benefits
by allowing play station games on Sony phones.
Companies
make smartphones to promote their other services:
Apart from promoting the products,
smartphones also help companies to promote their services. For example, Microsoft has entered in the smartphone
business through its Windows operating system and potentially using cloud-based
services such as Office 365. Similarly, HTC and Blackberry are working as
Android OEMs out of need. HTC is making smartphones to connect its users to its
wearable ad virtual reality headsets. Blackberry also has got nothing to do with
smartphone profits as it already relies on its enterprise business for profits
and sustainability.
Companies
make smartphones to promote their shopping portals:
Smartphones are a great means to generate
profit through online portals for companies like Xiaomi. The company is making
affordable smartphones to lure Indian consumers. As it is consumer base is
increasing, it is capitalizing this well-disposed consumer base to sell its
additional services and extra products like Luggage. Most of the companies
release their new flagship models every six months while Xiaomi does the same
in 18 months, this helps the company to earn more profits and sell accessories
such as back plates and batteries. The accessory business can flourish only if the
huge volume of a particular model is sold in the market.
Though making a smartphone needs time and
effort but the current market scenario allows the smartphone manufacturers to
make a decent one easily. As the Android is the leading OS in the market,
Manufacturers need to figure out how can they produce and sell the most
attractive possible device at the most affordable price. Today, it’s not about
the product but about the services.
Today, only Apple and Samsung are at the top
while other Chinese manufacturers are popping and vanishing with a rapid price
war. In such a competitive environment, everyone is curious to see whether LG
and Sony will sustain in the market with heavy losses or will lose like Nokia
and Motorola. Well, this will be clear in next 5-10 years but one should
understand the fact that current market demand software and services rather
than the hardware.
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