Why Smartphone Manufacturing Companies Continue Making Profitless Android Phones

When it comes to the smartphone industry, we can say that Android is the king. The manufacturing and use of smartphones have increased exponentially since the Google introduced its Operating system Android. Since then, as and when the android comes up with its newer version, Smartphone makers in India introduce a series of new smartphones in the market supporting all those features. With so much of demand and supply, it seems that the smartphone manufacturing companies must be making profits in multiples. Don’t you think the same?
Well, the truth is completely different.
According to a new data from the research firm Canaccord Genuity, it is awfully difficult to make money through smartphone sales unless you are Apple and Samsung. Yes, surprisingly, Apple and Samsung are the only companies that are making money from Smartphone sales. Apple is the most profitable with a 38 percent margins while Samsung comes next to it making a 17% mobile device-operating margin.
What about others?
With so many huge brands such as Sony, Nokia, HTC, Blackberry, Microsoft, existing in the smartphone market for so long, this question is obvious. Unfortunately, the truth is that other notable Smartphone makers in India or abroad are working at very less or no profits. HTC and Microsoft are running at 22% percent loss. LG, which has some of the best handsets in the market, is also running on 5% percent loss. Lenovo is also running on 10 percent loss.
All these findings underscore how the smartphone market has become cutthroat and how much it is difficult for a company to make a sizeable profit off smartphones.  In this huge widespread smartphone market, Only Samsung and Apple have this ability to generate profits on its smartphones setting aside all other competitors.
Now, this begs a question i.e. why would companies continue to make smartphones despite no profit or in fact losses in it? For last so many years, it’s only Apple and Samsung that have been gobbling the smartphone market profits.
After a thorough analysis, it was concluded that profits are not everything. Most of the smartphone manufacturing companies in the market are not to reap profits through smartphone manufacturing but it is a way to get into the minds and hearts of smartphone business users to promote their other business ideas, technical efficiency, and other products.
Let us see this with some examples:

Image Courtesy: BGR.in
Smartphones to show technical leadership: For a serious consumer electronics company like LG, having smartphones in the business will boost their growing ecosystem of smart home, TV and car gadgets. The smartphones serve as the best means of ubiquitous advertising to its consumers. Besides this, Smartphones act as the best way to showcase engineering efficiency of the company through various components. For example, LG Chem makes batteries, LG display makes advanced displays and these products are combined in smartphones like the G-flex. By showing their technical expertise through smartphones, the company can convince other OEMs to use LG parts.

SONY seems to take similar advantages with its Xperia smartphones. It has its own ecosystem benefits by allowing play station games on Sony phones.

Smartphones to promote other services: Microsoft has entered into the smartphone business users through its Windows operating system and potentially using its cloud-based services such as office 365. Companies such as HTC and Blackberry are working as Android OEMs out of necessity. For example, HTC might be using its smartphones to get users to its wearable ad virtual reality headsets. Blackberry is relying on its enterprise business to sustain itself.

Smartphones to promote shopping portals: For companies like Xiaomi, Smartphones works as a conduit to generate profit through its online portal. Xiaomi makes quality smartphones at affordable price points that endears them to Indian consumers. The company seeks to capitalize this well-disposed consumer base by selling additional services and extras like luggage. While the other companies release the new flagship models every six months, Xiaomi continues to sell the same model for around 18 months. This gives it more flexibility to earn profits and sell accessories such as back plates and batteries. The accessory business makes sense only a when a huge volume is sold in one particular model. Instead of focusing on hardware profits, the company is concerned to offer services to customers.

In the current scenario, it may be difficult to build a great smartphone but a company can make a decent one easily.  The competition today is not about making a smartphone but about the consumer services. So many manufacturers such as Motorola, Sony, Nokia came and offered most attractive devices at the cheapest possible price but this Android tide has swept aside all these players.


Now, its only Apple and Samsung that are left on the top with a sea of Chinese manufacturers who are keen on destroying each other through a rapid price war. Now the question arises whether this LG and Sony will continue manufacturing smartphones tolerating heavy losses or will lose like Nokia and Motorola. We may don’t have an answer to this and the picture will be clear in next 5-10 years. But the companies today need to understand that the mobile businesses have shifted towards software and services rather than on hardware.

Comments

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