Samsung, Chinese mobile device brands push profits in Q3 2017

Global mobile handset profits grew 13% YoY in Q3 2017 due to strong performance of Samsung and Chinese brands, according to the latest research from Counterpoint’s Market Monitor program for Q3 2017 (July-September),

Tarun Pathak, Counterpoint Associate Director, highlighted: “This is the first time ever when the cumulative profits of Chinese brands crossed US$1.5 Billion for the first in a single quarter. Usually all the profits have been shared by just two brands Samsung and Apple, however, Chinese brands have made inroads here as well.”

(TOP: The Tecno SPARK, one of the Chinese mobile brands).

Mr Pathak, further added: “The growth of Chinese brands can be attributed to the diligent efforts in streamlining the supply chain with rising mix of mid to high end smartphones in their portfolio. Even in the premium segment, players like Huawei are positioning their flagship models just below the premium offerings from Apple and Samsung. This strategy is designed to penetrate premium market while maximizing revenue and profit.”

Neil Shah, Counterpoint’s Research Director, added: “Apple continued to command lion share of mobile handset industry profits capturing almost 60% share. However, this is down from 86% share in the same quarter last year when Samsung had to gulp up a loss due to the Galaxy Note 7 debacle. The Korean vendor though with relatively stronger demand for Note 8 and mid-tier high-scale J series have been able to capture almost a fourth of the global mobile handset industry profits.”

Shah added, “Apple still generates more than US$150 profit per iPhone sold and this will continue to grow into the holiday season quarter buoyed by the high price iPhone X series. Our recent channel checks across key Apple markets showed, the demand for the 256GB version of iPhone X is higher which will boost Apple’s profits even higher.”

Exhibit 1: Global Handset Profit Share by Brands: Q3 2017

Market Summary:

Apple captured nearly 60% of the total profits generated in mobile handset segment followed by Samsung
Apple’s profit share declined by 30% YoY mainly due to increased mix of previous generation iPhones. The average selling price of iPhone remained flat YoY while the shipments increased 3% YoY.
In Q4 2017, we estimate that the total profits of Apple will improve driven by its iPhone X sales. Apple exited the quarter with some iPhone 8 inventory due to softer than expected demand compared to the iPhone 7 series.
Samsung made a strong come back in the third quarter with its Note 8 series while S8 series continue to perform on par. The profit share reached 26% as compared to its loss during Q3 2016 due to Note 7 debacle.
Huawei witnessed highest profit growth of 67% YoY in Q3 2017 due to its portfolio expansion across price bands. Huawei’s smartphone ASP grew by 6% YoY driven by its Mate and P series.
Oppo & Vivo captured fourth and fifth spot in Global Handset profit share mainly driven by their performance in China.
While Xiaomi has made a strong comeback with handset profit growth of 41% YoY, it is still behind the market leaders. For Xiaomi, offline distribution is the key to reaching OPPO or Huawei’s scale, but most of Xiaomi’s sales are still skewed towards lower-end models. Xiaomi needs premium flagship like Mi Mix 2 or Mi 6 series to scale and drive higher profits also to offset the offline expansion costs. Xiaomi is rumored to be in pre-IPO phase and instilling investors confidence that it can scale and make more money will be key next year.
Expansion of Chinese players outside China will have an impact on the profit margins of Chinese players which they would like to mitigate by increasing the mix of mid segment devices in markets outside China.

Profits per unit sold:

Apple’s per unit profit is five times higher than Samsung and approximately 14 times higher than the average per unit profit of Chinese brands. Apple’s per unit profit stood at $151 in Q3 2017.
Samsung with its global presence has one of the highest number of models across price bands. Its profit per unit was $31 in Q3 2017
Chinese brands like Huawei, Oppo and Vivo are all performing similar in terms of profits per unit, each having an average per unit profit of $15, $14 & $13 respectively.
As compared to other Chinese brands, Xiaomi’s per unit profit is lower ($2) as it plays on very thin margins.

Exhibit 2: Global Handset Profit Per Unit by Brands: Q3 2017