Samsung’s Woes Greatly Benefit Apple

Apple (NASDAQ:AAPL) is now the most profitable smartphone seller in the world by far. In the third quarter of 2016, Apple took 103.6 percent of the profits from all smartphone sales, according to estimates. Samsung was barely profitable for the quarter, capturing just 0.9 percent of the profits. The quarter marks the first time that Apple has captured over 100 percent of the profits of smartphone sales. In the same quarter of last year, Apple took 90 percent of the profits.

The higher than 100 percent figure is possible because rival smartphone-makers LG and HTC reported significant losses. LG recently revealed that its smartphone division lost $390 million in the quarter between July and September 2016. It was the sixth straight quarter of declining profits at the unit. HTC reported a $63 million loss for the third quarter.

Samsung’s decline in market share was largely due to the Galaxy Note 7 recall. Samsung had to recall the faulty phones after they started catching fire due to battery issues. The company then sent out roughly a million replacement devices which also started exploding. Production of the Galaxy Note 7 has now ended and all of the devices recalled.

According to an IDC survey, 50 percent of former Galaxy owners switched to an iPhone after the recall. However, Samsung managed to remain the biggest smartphone seller, accounting for 21.7 percent of all smartphones sold around the world. Apple accounted for 13.2 percent share. Chinese electronics firm Huawei finished third, with 9.7 percent.

Apple actually saw a decline in iPhone sales in the third quarter. The company reported a year over-year-fall in iPhone shipments from 48 million in the third quarter of last year to 45.5 million this year. In Apple’s most recent earnings call, the company reported its first revenue decline since 2001.

Global smartphone shipments grew by 6 percent annually, to 345 million units in the third quarter. That was the fastest growth rate for a year to date. However, a significant portion of that growth is coming from emerging markets in Asia, Africa and the Middle East. The profit margins for phones in those markets are razor thin.

Android’s share of the global smartphone market by unit shipments has risen to its highest ever point of 88 percent. This was up from 84.1 percent from the same period a year ago. Almost nine out of every 10 smartphones around the world are running Google’s operating system. Apple’s iOS has fallen to 12 percent, down from 13.6 percent in the third quarter of 2015.

Apple’s challenges are particularly acute in China. In June, China’s Intellectual Property Office charged that Apple’s iPhone 6 and iPhone 6 Plus infringed on an exterior design patent by Chinese company Shenzhen Baili. Earlier this year, Chinese government regulators blocked access to Apple’s iBooks and iMoves within the country. It will be interesting to see how Apple tackles its expansion plans in the country going forward.