Apple Inc. (NASDAQ:AAPL) is one of the most profitable firms in the world. In the first quarter, it reported the most profitable quarter in history. The firm not only reported the most profitable quarter in its history as a company, but also in the history of all public companies ver.
A quick reminder—in the first quarter (Q1 2015), Apple reported profits of a massive $18.04Bn. Before that reveal, Russian Gazprom, (the biggest extractor of natural gas in the world) had the most profitable quarter in history.
Gazprom held that record with profit of $16.2Bn in a single quarter. Apple’s $18.04Bn beats Gazprom’s $16.2Bn profit by 11.36% to hold the title for the most profitable quarter ever. Out of the last 20 record holders for the most profitable quarter, oil and gas firms took fifteen slots while Apple alone took 5 slots.
The Secret of Apple’s Massive Profits
It is no longer secret that the key to Apple’s profits is its iPhone sales, which have continued to increase yearly. The premium-pricing model to a cult-like following of fans further cements the rate at which Apple makes money on its iPhones. Now Canaccord Genuity managing director Mike Walkley has confirmed the role that iPhones play in Apple’s success as covered in a report by the Wall Street Journal.
The Wall Street Journal reports that of the nearly 1,000 smartphone makers in the world, Apple is a profit magnet. Apple recorded 92% of the total operating income from the top eight global smartphone makers. All of those firms can make their smartphones, but almost all of the profit is coming into Apple’s coffers.
Last year, Apple took 65% of the total profits of smartphone makers worldwide. The 92% of profits reported this year marks 27% annual increase in profits for Apple. Samsung Electronics Co Ltd (KRX:005930) who makes smartphones on Google’s Android OS came second with a profit of 15%, which pales in comparison to Apple’s 92%.
The WSJ reports that both Apple and Samsung have more than 100% combined profits because the other players in the smartphone market either broke even or recorded losses. For instance, Microsoft has written down as losses 80% of the smartphone business it bought from Nokia last year.
When People Gladly Pay a Premium
Apple’s massive profits show the power of premium pricing. Apple took 92% on industry profits despite the fact that it sold less than 20% of smartphone units. The fact remains that there is only one iPhone running on iOS, in contrast, there are many “similar” smartphones running on Android OS. Hence, most players in the Android space compete on price because their products are practically the same.
Apple offers radically different products; hence, it is able to sell at its own price. Last year, the firm sold its iPhones at a global average of $624.
In contrast, Android smartphone sold for a global average of $185. iPhone sales are expected to hit 250M units this year. Inasmuch as Tim Cook and his team continue to Think Different in its product offerings, it will continue to take the lead, and there will only be two consumer electronic players in the world – Apple and others.