Premium Android hits the wall: the Q2 2015 smartphone scorecard


Premium Android phones went off track in the second quarter. Photo by -Jeffrey- on Flickr.

It’s late, yes. But all the results are now in for the second quarter (April-June) of the smartphone business.

The TL:DR: high-end Android OEMs had a terrible second quarter. The smartphone business generally grew less quickly than for a couple of years as China stagnated overall. But not for Apple; by contrast, it grew strongly. Samsung’s Galaxy S6 did not impress the punters. LG’s G4 sold less well than apparently the company hoped. Sony had a torrid time. HTC then redefined torrid. Premium Android has a real, immediate problem.

Details, details

A year back, in the second quarter of 2014, the combination of Samsung, HTC, LG, Sony, Motorola and Lenovo together shipped a total of 129.4m smartphones. (Samsung shipped 74.9m of them, or 58% of them.) The whole smartphone market constituted 301.4m devices, so that group had 43% of it.

In the second quarter of 2015, the combination of that same group (with Motorola now owned by Lenovo) shipped a total of 114.7m devices. Samsung shipped (an estimated, as always) 73.2m, or 64% of them. The whole smartphone market was 337.2m, so that group had 34% of it.

Note:
• None of the Android OEMs shipped more handsets than in the year-ago period.
• None made more operating profit than in the year-ago period. Quite a few lost money, including Sony and HTC – in the latter’s case, enough that its future as an independent company is in serious doubt.

Profit or loss, that’s a lot of handsets. It’s easy to underestimate how complex the process of designing, making and distributing millions – that’s millions – of handsets across the globe is. All of these companies is doing a remarkable job in making and getting hardware out there. The problem is that it’s a job which only two companies are doing with any great success. Here are how the financials stack up:

OEM Smartphone revenue US$ (approx) Operating profit US$m Operating margin % Smartphones shipped Implied ASP per smartphone Implied profit per smartphone
HTC $1.066bn -$166m -15.5% 4.5m $236.89 -$36.89
Sony $2.30bn -$187.9m -8.1% 7.2m $319.36 -$26.10
LG $3.16bn $0.22m 0.0069% 14.1m $235.98 $0.016
Samsung $20.95bn $2.44bn 11.6% 73.2m $286.10 $8.51 $33.33 [thanks Walter Milliken]
Lenovo
(inc Motorola)
$1.86bn -$292m -15.6% 16.2m $114.81 -$18.02
Total for ‘public’ Android $29.34bn $1.79bn 6.1% 115.2m $254.69 $15.54
Apple $31.37bn $8.78bn (28% est) 47.5m $660.00 $184.80
Microsoft Mobile $0.94bn -$646.8m -68.5% 8.4m $110.00 -$72.00

Working assumptions:
HTC: all revenues from smartphones – zero from the Nexus 9 tablet (pretty certainly true), zero from the HTC Re camera (probably true). The shipment figure comes from IDC, so is definitive.
Sony: all revenues and profits from smartphones; zero from tablets – of which it shifted fewer than 1.6m, given IDC’s numbers; and zero profit from tablets.
LG: $100 average selling price for the 1.6m tablets that IDC says it shifted in the quarter (and it seems to have a range of eight). Tablets assumed to have zero profit, though they might have made some loss that made everything else look worse.
Samsung: featurephones (it shipped 15.8m) sold for $15, zero profit; tablets (7.6m) sold for $175, zero profit. If the tablets or featurephones made any profit, then the profit from smartphones were lower.
Lenovo: assuming the 2.5m tablets it sold had an ASP of $100, and zero operating profit. If the tablet ASP was lower, Lenovo smartphone revenues were higher; if the tablets were profitable, per-smartphone loss was greater.
Apple: operating margin, as previously, of 28%. You could halve this, or even put it level with Samsung’s declared margin, and its operating profit would still be more than all the others’ profits (even ignoring losses) put together.
Microsoft Mobile: the figures here have to be backed out from the headline smartphone revenue ($1.23bn) and stated gross margin (-$104m). Microsoft shipped 19.4m featurephones; assume they had an ASP of $15 and made zero profit (same as with Samsung). The Lumia ASP has to be estimated, but seems reasonable.

The dire state of premium Android

In its explanation of how things had gone so horribly wrong, HTC said that “Weaker-than-expected demand at the high end, consistent with Android market, along with weak sales in China, lead to a year-on-year fall in the second quarter. Meanwhile, year-on-year shipment volume increases were seen across select key emerging markets.”

Perhaps, although HTC’s problem might be that the product is underwhelming. It’s the same product it’s been making for three years; nothing has changed. Meanwhile Sony can’t get the distribution: carriers seems to be edging away from it, and you have to go back to Q1 2012 to find it shipping fewer phones. And LG – despite having a great camera in the G4, which is usually what sells a phone – doesn’t seem to have broken through in a big way. And yes, that really is an operating profit of 1.6 cents per phone.

Samsung seems to have had the same problem: its Galaxy S6 and S6 Edge have sold below pretty much everyone’s expectations (especially those who gave it an overheated welcome for its iPhone-alikeness – which I never thought would be a selling point; who wants faux for the same price as real?).

And things aren’t improving for these OEMs. Compare those handset shipments compare to the same period a year and two years ago:

OEM 2013 2Q
shipments
2014 2Q
shipments
2015 2Q
shipments
HTC 6.8m 6.2m 4.5m
Sony 9.6m 9.4m 7.2m
LG 12.1m 14.5m 14.1m
Samsung 73.3m 74.9m 73.2m
Lenovo +
Motorola
15.7m 24.4m 16.2m
Top-end
Android OEMs
117.5m 129.4m 115.2m
Apple 31.2m 35.2m 47.5m
Microsoft/
Nokia
8.7m 5.8m 8.4m
Total
smartphone
market
240.5m 301.4m 337.2m

Note that the total number of handsets from the listed Android OEMs is down in 2015 compared to both previous years, despite the smartphone market being bigger than ever (figures from IDC). I’ve left out “Others”, which are principally lower-end Android phones.

The only one that’s doing better is Apple: not only is it selling more handsets, its average selling price (ASP) of $660 was one of its highest ever. It’s clearly not chasing the low-end buyers (or if it is, it’s not finding them).

A clearer way to see this is to graph the growth in revenues from smartphones for these companies.

Apple revenues growing, rivals falling

Apple has seen 50%+ revenue growth from iPhones in the past three quarters; rivals have faded.

Look also at ASPs. Those have fallen, which suggests fewer high-priced phones being sold. (Especially if you’re selling fewer phones, a falling ASP indicates you’re shifted towards cheaper phones.) First without Apple: note how all the ASPs are lower (in LG’s case, only just) than the year-ago period:

Falling ASPs at premium Android OEMs

Note that they’re all lower than the year-ago period. Add slowing revenues, and you get a picture of fewer top-end phones sold.

And now add Apple: note how its ASPs have risen.

Apple's ASP has risen in the past year

There’s a contrast with rivals.

This makes it pretty clear, I think, that Apple is cruising ahead, while the others are struggling recently. Lenovo/Motorola isn’t included because its figures aren’t comparable year-on-year.

(I tried lots of variations. In revenues alone, Apple’s seasonal fall distorts the picture. In profits alone, the huge disparity between Apple/Samsung and the rest makes the change invisible; in profit growth, the wild swings from loss to profit by Sony and others makes the numbers meaningless. I added ASPs after a discussion on Hacker News.)

Premium Android and the piranhas

“Premium” Android is getting torn apart, piranha-style. Cheaper phones from Chinese companies such as Xiaomi, Huawei, OnePlus, and Oppo are taking away their high-end Chinese business. Slowdowns in developing countries (notably south America) are killing sales there.

And in the west, there isn’t the same appetite for continued upgrades that there was; people are upgraded out. Does the Galaxy S6 really offer anything special over the S4 or S5? If anything, Samsung has pared back on both the software and hardware features – it doesn’t have some of the weird things where you waved hands to scroll screens, nor the microSD card and removable battery that a number of previous Samsung buyers liked. As I said before, Samsung must know how many people actually use the removable battery. But maybe that’s like buying a car with airbags: you don’t expect to need them, you just want to know they’re there in an emergency.

The peculiar thing is that Samsung is throwing everything it has at the premium end. You can now choose (depending on location) from the following:
• Galaxy S6
• Galaxy S6 Edge
• Galaxy S6 Edge Plus
• Galaxy Note 5
and that’s just this year’s models. The Galaxy S5 and Note 4 from last year are still on sale. Samsung seems to be trying to segment demand by not making the Edge Plus available in the same places as the Note 5.

I’m not convinced that will actually drive demand for Samsung premium handsets, though. Nor, it seems, are investors: Samsung Electronics shares have fallen for five straight months, Bloomberg says, and quoted Lee Seung Woo of IBK Securities, who said “We all know its smartphone business isn’t doing well. I can’t really figure out when the stock will stop declining. The fundamentals look problematic.”

The iPhone, meanwhile, pulls people in and generally keeps them there too. (Apple’s stock has hardly thrived lately, but not a five-month continuous drop.)

The point of no return?

I don’t think the crash in premium Android sales is a one-off. The competition from low- and mid-priced devices is fierce now, and yet these companies don’t seem to be putting any clear blue water between them; they’re not offering anything better than they did a year ago.

Case in point: Samsung’s Galaxy Note 5 has a smaller battery, also non-removable, than last year’s Note 4; and no SD card – which has pissed off some former Note buyers. How does that compete against the Xiaomis and Oppos and OnePlus phones of this world, which are much the same spec for less? Or even the iPhone 6 Plus, which has a better-adapted app store, and costs less?

Meanwhile HTC is talking big of releasing a premium phone late in the year; damned if I know who it thinks is going to buy it when Samsung and Apple will have new products in stores. (Meanwhile, the company is valued below its cash reserves, so it’s using some of those to buy back 6% of its stock. I cannot see how that is a smart use of resources.)

More than ever, the smartphone business is turning into one where only two companies make money from handsets – and increasingly, only one gets the top-end business. For the rest, they need something new to come along that they can get into and make some profit. Android Wear smartwatches don’t seem to be setting the world alight; will VR be the next big thing? Or IoT? Or self-driving cars? At this point, anyone that isn’t Apple or Samsung seems to be praying for a miracle.

Update: there’s a discussion on this post at Hacker News.

Previously in this series:
Android OEM profitability, and the most surprising number from Q4’s smartphone market
Android (and Apple, and BlackBerry, and Microsoft Mobile) handset profitability – the Q1 scorecard

Other stuff you might like:
The adblocking revolution is months* away with iOS 9 – with trouble for advertisers, publishers and Google
* weeks now, as this post was in July and iOS 9 is imminent

BlackBerry might have no BB7 users left by January 2016

22 thoughts on “Premium Android hits the wall: the Q2 2015 smartphone scorecard

    • High-end Android has meaningfully translated raw specs into better user experience until around 2013. After which increases in specs for the high end brought very little to the real world table, while the low end devices heavily caught up in to deliver “good enough” level of performance.

      I bet Samsung et al. saw through Google’s devious ploy of making themselves the next Microsoft of mobile with Android, but they didn’t have a choice knowing their utter incompetence on the software front. It’s damned if they do, even more damned if they don’t, and now pain of hardware commodization and razor thin margins is spreading as Google’s iron grip grows tighter and tighter…

  1. In the first table, Samsung’s $8.51 implied profit per smartphone looks too low, Should be $2.44bn/73.2m=$33.33, shouldn’t it? As it is, Samsung’s profit/phone is less than the Android total profit/phone, but it’s the only real positive contributor…

  2. Not an analyst … So not going to tell you what this means for next year … But Apple’s big jump in ASP seems to be a function of the 16/64/128 GB configurations. Proportionately, sales of 16 and 128 GB machines were on glide path, but there was a big jump in 64 GB phones. Duh … folks who were on the fence about spending an extra $100 for a 32 obviously bit when it was a 64 GB device instead.

    I’m not sure if this was subterfuge marketing from Apple, or if it was just a function of chip supplies. But it worked, and it’s a stunt that they could pull off again, maybe with something other then just memory.

  3. How does a company sell twice as many phones as Apple and still not make a profit? It makes no sense that Apple makes that much money on selling less devices than Samsung unless there are some other manufacturing/shipping and other logistics we are not seeing here.

    • 1) Samsung sold (an estimated) 73.2m smartphones v 47.5m for Apple – so Apple sold a third fewer.
      2) Fewer devices, not less. Less coffee, fewer coffee beans.
      3) Samsung does make a profit – estimated here at $33.33 per handset, more than any other Android vendor we know of. It’s less than Apple’s because as the ASP implies, there are lots of cheaper phones. The cheaper ones generate less profit. There should actually be economies of scale from making/shipping more, but of course you have to get them to the right place. The figures here include marketing/shipping and other logistics costs (that’s implied in the term “operating profit” supplied by Samsung).

  4. Samsungs new devices are less capable than the previous generation in many respects (no SD, no removable battery, worse battery life than previous models), HTC devices are getting bigger and uglier, Sony when you can find devices are so fragile the glass is cracking on peoples nightstands, LG devices were expensive. And all of them where introducing a complicated mix of models and specs so brand loyalty was being punished. Apple meantime stuck to a predictable schedule and delivered solid features (even if their marketing hype pretends they invent a lot of things, as opposed to merely better marketing!) and they keep their OS clean – no OEM or carrier bloat/spyware eating battery and stealing storage. The fragmented nature of the Android market isn’t helping them either… they add niche features like the Edge side notification area but apps don’t use it so it’s a waste. Then when folks like One Plus rock up and deliver the same (or better) specs for 3/5ths of the price the smarter segment of the early adopter crowd defect and the halo effect the big brands need goes out the window.
    I’d love a 4.7-5″ Gorilla Glass fronted Android L device with 3GB RAM, 32GB usable storage, a decent (genuine 24 hours use) battery,a great fast camera and an SD card slot. I don’t need it as thin as a business card, I don’t want a slipper glass back which will shatter if I look at it funny, I don’t need it loaded down with “helpful” optimizations and apps that I’ll never use and I don’t want to replace it every 12 months (especially at a $750 price tag with no removable battery)
    Sadly these days the closest reliable device on the market is either an iPhone 5S or an Lumia 830

      • Yes, Motorola (under its newest owner, Lenovo) is certainly doing that. Indeed it was one of the first to head that way when owned by Google with the Moto E/X/G, and definitely succeeded in offering phones with good features at very attractive prices.

        Motorola’s constant problem though is that it can’t make an operating profit. Since it was spun off from the Big Motorola in the first quarter of 2010, it has had (by my count) exactly two quarters when it made an operating profit – both of those in 2010.

        So that’s 20 of 22 quarters so far in which it has made an operating loss. (Yes, I know Motorola’s CEO used to say “we make money on every phone we sell”, but he was referring there to gross profit: the cost of making the phone was less than the cost it sold for. Operating profit takes into accounts R+D costs, sales/general/administration costs and so on – what you need to run a business.)

        I’d say, on balance, that other companies are doing the “premium features at cost-conscious prices” game better than Motorola.

      • it’ll be interesting to see if they can make a difference and still manage the costs… without the profit it’s hard to afford the marketing… and they’ll be competing on brand name against ZTE and OnePlus

  5. Two things.

    Firstly, whilst I appreciate your angle is on the profit margins of large corporations which is important to some, surely there is a major achievement here which is not being celebrated?
    Great phones in the hands of the masses, you can nitpick about the OS or the build quality but in many cases this is reaching near flagship levels on devices a third of the price of others.

    Secondly, do you see some kind of doomsday scenario for the consumers of these devices, why are any of these companies still making android phones, why haven’t they given up and moved onto other product lines which actually make them profit? Do you see that as the next logical step or is there some kind of Kingsman-style Valentine plot in the offing? Why should the general man in the street care about Apple or Samsung’s profits?

    • “Surely there is a major achievement here which is not being celebrated?”

      See the fourth paragraph of the section called “Details, details”: “Profit or loss, that’s a lot of handsets. It’s easy to underestimate how complex the process of designing, making and distributing millions – that’s millions – of handsets across the globe is. All of these companies is doing a remarkable job in making and getting hardware out there.”

      “why are any of these companies still making android phones, why haven’t they given up and moved onto other product lines which actually make them profit?”

      Because they have huge investments in making smartphones: factories, contracts, shipping contracts, employees. These are not enterprises into which one enters with eyes closed, nor leaves lazily. Look at how BlackBerry is still clinging on to the rump of a handset business; look at how Microsoft continues despite losing a ton of money.
      Also: because there isn’t any obvious space at the moment to move into preferentially.
      And: expertise in making smartphones should pay off for the internet of things – same technologies apply in many cases.

      “Why should the general man in the street care about Apple or Samsung’s profits?”

      I doubt they do. But they see the effects of those profits in the form of phones that are cutting-edge in manufacturing expertise, features, software and distribution because those two companies make the profits that allow them to reinvest in those things. If you don’t make a profit, or the relevant part of the business doesn’t make a profit, you’re not going to invest heavily in it.

    • Actually, Randy, it does. The second meaning in my dictionary for “torrid” is “full of difficulty”. It’s a British meaning, but then I’m British.

      • My first guess was that you were mashing “terrible” and “horrid” into “torrid”. “Sony and HTC had a torrid time” sounds quite amusing in the U.S., suggesting that the two companies were making out in the back of the bus or something.

        But if your usage is kosher over in the U.K., then so be it! I can now say I learned something today.

        Cheers –

  6. So, the dumb f—s simulaneously market on the basis of ‘We’re not Apple’ and remove the main thing that was actually good and useful about their not being Apple– upgradable memory and replaceable batteries– and now they’re wondering why their little bundles of hackable joy aren’t just flying off the shelves.

  7. Very informative and insightful.

    Wonder if these organizations will ever be able to copy the spirit of Apple. Focus on creating few insanely great products; revenues and profits will take care of themselves.

  8. The Achilles’ Heel of the all high-end Android players is software. All of them are hopelessly dependent on Google to survive and whatever customization or bloatware they or the carriers put in their devices and spotty updates actually make the end user experience even worse regardless of the underlying hardware. Yet on the other hand, Motorola and Xiaomi proves that you don’t spend astronomical amounts on bleeding edge hardware to enjoy a good enough Android experience.

    It’s the race to the bottom PC cycle again, v2.0.

  9. Curious on your thoughts about the Nexus 5X and 6P announcements impact on the premium Android market. My layman’s perspective is that further price pressure caused by the Nexus line will further hurt the premium market.

    • The Nexus lines tend to sell in small numbers – perhaps a million or so? – but they are likely to cream off the top-end buyers who really care about the software experience. Notable that they are pricier than in the past. But you’re right that they contribute to downward price pressure on the premium makers.

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