Apple (s aapl) commands a relatively paltry share of the worldwide cell phone market, despite the success of their iPhone. That’s because, regardless of appearances, the field is overwhelmingly dominated by regular old dumbphones, which still outsell smartphones by a wide margin. In fact, Apple and RIM (s rimm) still only command three percent of global cell phone sales taken together, with all smartphones only accounting for only 13 percent of mobile phones worldwide.
The secret to the success of both RIM and BlackBerry? That tiny three percent market share accounts for 35 percent of the world cell phone industry’s profits. For the sake of comparison, consider that Nokia, the largest mobile phone maker in the world, made 46 percent of cell phones last year, and reaped only 55 percent of the profits. All of this is according to Deutsche Bank analyst Brian Modoff, recently featured in the Wall Street Journal (subscriber content).
Modoff goes on to predict that this year, RIM and Apple’s share could grow to five percent, and give them 58 percent of total profits. As long as they keep making incremental gains, and stay atop the burgeoning smartphone market, both companies stand to make huge financial leaps in a market that still has plenty of room for growth.
The reason Apple and RIM make so much money off of their handsets compared to ordinary cell phone manufacturers has to do with the subsidies wireless companies are willing to offer on the devices. iPhones are subsidized, on average, to the tune of $400, while BlackBerrys generally get $200 knocked-off per unit. The average non-smartphone device only receives about $100 in subsidies by comparison, resulting in a comparatively tiny profit margin.
For both companies, the next step will be trying to wrestle service providers into offering low-cost alternative data plans in order to convert more regular cell users into smartphone owners. As demand for their products continue to grow, and as other phone manufacturers like Nokia start to see just how much more lucrative the smartphone market is, makers of the devices will begin to have a lot more sway when it comes to convincing providers to amend their offerings.
Just look at what Apple has already achieved with the iPhone. They’ve successfully fielded a device that cuts into the provider’s ability to make money off of games and application add-ons, navigation software charges, ringtone downloads, and so on. AT&T’s (s att) concessions to Apple in those areas represents a huge blow to the power wielded by wireless providers, and I wouldn’t be surprised if they could wrest away more control in future exclusivity dealings.
Photo courtesy of flickr user JazarellaMozarella