HONG KONG (Reuters Breakingviews) - Apple’s new handsets take features from Asia and add profit. While the latest iPhones boast big upgrades, much would be familiar to users of Samsung or Huawei phones. Apple’s branding wizardry, price discipline and focus on richer customers set it apart when it comes to the bottom line.
The new phones, unveiled on Tuesday, boast numerous improvements. Key selling points include wireless charging, bigger screens powered by cutting-edge OLED display technology, and advanced cameras that allow facial recognition and augmented reality.
Yet none of this is revolutionary. Flagship phones from South Korea’s Samsung already have OLED displays, facial recognition and wireless charging. And China’s dominant, privately owned handset makers - Huawei, OPPO, and Vivo – cram new features into affordable phones. OPPO devices can be 75 percent charged in less than half an hour, a more useful trait than wireless charging. Meanwhile, Huawei is set to launch a new phone with artificial intelligence-powered features, like instant translation and image recognition.
Yet Tim Cook’s $831 billion company is way ahead when it comes to profitability. Last year, Apple accounted for a whopping 79 percent of all the smartphone industry’s operating profit, according to Strategy Analytics. To compare, Samsung and Huawei captured just 15 percent and 2 percent respectively.
Apple’s brand and market power help explain its superior operating margins, which analysts estimate to be more than 30 percent for handsets. At $999, the new top-of-the range iPhone X will be a luxury status symbol, particularly in faster-growing emerging markets like China and India. And Apple’s sheer size helps it negotiate favourable prices from suppliers that are dependent on the iPhone. This benefit is not open to its smaller competitors, although Samsung also enjoys huge scale.
And unlike rivals that compete on price in the lower and mid-end segments, Apple is focused on winning over richer users, meaning higher margins for each device. It has only tentatively moved downmarket by cutting prices on older models. Unfortunately for the others, it is harder to copy Apple’s financial playbook than it is for Apple to copy exciting new features.
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