Ethiopian Review

In the race for mobile phone profits, Apple has overtaken Nokia, according to figures for the latest quarter. Apple’s third-quarter operating profit from iPhone sales was $1.6 billion, while Nokia had operating profit of $1.1 billion from its handset unit, Neil Mawston and Alex Spektor, analysts for the Boston-based research firm, wrote in a report.

For Apple, which hit the cell phone market just over two years ago, its rank as the most profitable global mobile phone maker is impressive, said Spektor. In his report, he identified four key factors for the company’s surge in cell phone profits.

One factor is the strong branding of the iPhone. “They created the iPhone as an easy-to-remember, sticks-in-your-mind type of brand,” said Spektor. Each new iPhone is just one update on top of another, so the brand stays the same, and it’s the same user experience.

Another factor driving profits is the high wholesale price that carriers like AT&T pay to Apple. By spending only $199 for a device like the 16GB iPhone 3GS, the consumer is shielded from the huge subsidies that Apple collects on the phone. “The consumer might not realize how much an operator really is paying behind the scenes for that $200 phone,” noted Spektor.

The iPhone’s wide distribution and availability is a third reason for its stellar profit growth. Apple started in 2007 with just AT&T in the U.S., then slowly spread into Europe. “And now they’re popping up everywhere,” said Spektor. “They’re all over the world. Even in markets like the U.K. and France where they were previously with just one carrier, they’re now with two or three carriers.”

Nokia is struggling to hang on to its leading position in smart phones as competition increases from Apple, Research in Motion Ltd.’s BlackBerry and Motorola Inc.’s Droid. Nokia lost 6 points of smart-phone market share in the third quarter as it posted its first-ever quarterly loss.

“Nokia’s profit margin for its handset division has been shrinking during the global economic downturn in 2009,” Mawston said in an e-mailed release today. “We believe the United States, where Nokia now trails Apple in market share, is the key to Nokia’s recovery in 2010.”

Espoo, Finland-based Nokia’s market share in smart phones with advanced features such as Internet browsers fell in the third quarter to 35 percent from 41 percent, as it posted a $834 million loss, the company said Oct. 15. Nokia the next day replaced Chief Financial Officer Rick Simonson with sales chief Timo Ihamuotila, who had previously worked for Nokia in the U.S.

Ihamuotila this year helped convince AT&T Inc. to offer one of the Finnish company’s most-expensive handsets, letting the device share shelf-space with the iPhone at Apple’s exclusive U.S. carrier. In his sales job, he focused on making Nokia more open to changes from carriers, who have complained that Nokia was unwilling to let them customize phones with their own logos and software.

“A successful fight on Apple’s high-profit home turf can simultaneously help to revitalize Nokia’s margins and help put a check on Apple’s surging growth,” Mawston said.

Apple had a 25 percent increase in revenue last quarter, compared with a 20 percent drop at Nokia. Apple was helped in the third quarter by high wholesale prices and good cost control, the analysts said.

The iPhone is sold in about 80 countries and last month went on sale in China, Nokia’s biggest market by revenue. Nokia’s handsets are available in more than 150 countries. In the third quarter, Nokia sold about 16.4 million smart phones, the most expensive category of mobile handset. Nokia also sells cheaper phones, down to a 20-euro model for emerging markets.

Nokia last month sued Apple in a U.S. court, claiming infringement of 10 patents and seeking royalties on the 33.7 million iPhones sold since its 2007 introduction.