Apple, Samsung Account For All Mobile Phone Maker Q1 Profits

The evidence continues to mount that the mobile phone business is evolving into a two-horse race. It’s Apple, Samsung, and a host of desperate hangers on.

In the first quarter, according to Raymond James analyst Tavis McCourt, Apple accounted for about 80% of all profits in the mobile phone business, with Samsung accounting for the rest. The two companies combined, he figures, had 74% of mobile handset industry revenues.

The handset business is both maturing and going through a rapid transition away from feature phones. McCourt notes that global handset volumes declined year-over-year in the first quarter, “the weakest performance in history” aside from the global recessions in 2001/2002 and in 2009. “With smartphone upgrade cycles in the developed world now slowing due to higher penetration rates and emerging market growth slowing, the global handset industry appears to be officially mature from a unit perspective,” he writes in a research note.

But keep in mind that the old handset industry is basically “moprhing” into the mobile computing industry. This isn’t about the industry simply evolving; there is revolutionary change underway. And most of the players are getting trampled in the process. McCourt notes that revenues ex-Apple are down year-over-year, and pre-tax margins are at multi-year lows.

“It is getting increasingly hard to understand where the rest of the device vendors will get the capital to fund necessary R&D and sales and marketing investments to continue to compete with Apple and Samsung,” the Raymond James analyst writes.

He wonders where, aside from Samsung, Google and Microsoft will find hardware partners to use Android and Windows Phone.

“With essentially all of the other hardware vendors besides Apple and Samsung struggling to find profits to reinvest into R&D, Microsoft and Google have to be wondering who their hardware partners will ultimately be,” he writes. “Neither wants to be in a position where they have to take on more of the R&D burden, and neither want to have to initiate bidding wars to give Samsung an incentive to focus on its platform. Our assumption is that both Huaweii and ZTE will be courted heavily over the next few quarters by both Microsoft and Google as they look to strengthen their stable of sustainable hardware partners.”