Apple owns a whopping 94% of total smartphone operating profits. Samsung comes in at 11%, while all other manufacturers trend negative. The reason these figures exceed 100% is because all of the other companies reported negative operating income from their smartphone businesses.
What drives the distinction? Average selling prices. According to Canaccord Genuity, it’s the vast difference in ASPs — Apple’s ASP sit at $670, whereas Samsung’s are just $180.
Google wants to see Android compete more effectively in the high-end smartphone market, but its partners aren’t delivering devices that do that particularly well. Samsung’s product mix has swung towards budget and midrange devices in order to appeal to customers who might otherwise buy products from Huawei or Xiaomi. While these two companies still lag far behind the vendors US customers are familiar with, both are huge success stories — Huawei’s market share has doubled from 2012 to 2015, while Xiaomi has risen from 1% of the market in 2012 to 5.6% today.
Ars Technica reports Google has held off from making this change because it doesn’t want to upset OEMs, but notes many OEMs aren’t thrilled with the current program anyway. Not only does Google micromanage hardware design, the company takes a 15% cut on devices, thus shrinking OEM profit margins even further.
While the loss of branding isn’t particularly attractive, the OEMs might actually make a better profit margin if they shifted R&D expenses to Google and served as contract manufacturers. Absolute profit might or might not drop, depending on how high the R&D expenses are at any given company. The way Google has cycled through Nexus partners, however, suggests that multiple companies have tried the current Nexus partnership system and been unhappy with the result.
Google is apparently considering a partnership with HTC to build its devices on contract. In happier times, HTC would likely decline, but the company’s market share has cratered and its smartphone business is on the ropes. Under these conditions, HTC may decide it’s better to build devices on contract than to forego the additional revenue.