Smartphones last year accounted for a whopping 87% of handset industry revenue and a staggering 93% of gross profits, even though they only made up 46% of unit shipments compared to once-mighty feature phones, according to an IHS iSuppli Wireless Communications special report. 
With their exceptional appeal to consumers, smartphones have completely upended the mobile handset industry, in the process consigning their rival handset type to near-insignificance. Feature phones may have had a much larger 54% share in handset unit shipments than smartphones in 2012, but they took in just 13% of revenue and a doleful 7% of gross profits.
The primacy of smartphones has also meant stratospheric profitability for its most successful proponents – Apple and Samsung – to the outright detriment of former kingpins Nokia and Motorola.
It was the introduction by Apple of the iPhone in 2007 that changed the competitive landscape for cell phones in general and for smartphones in particular.
Able to host a multitude of apps, provide sophisticated features like voice and gesture recognition, and even operate as a music player and handheld camera, smartphones relegated feature phones with their simple and unadorned functionality to the fringe, largely reserved for poorer parts of the world that could not afford smartphones or possessed little access to wireless infrastructure.
Proving their value to consumers, smartphones sales have risen over the years, even as service-provider contracts have lengthened, contract phone prices have climbed and new data plans have added to the monthly bill.
The diverging market between smartphones and feature phones shows up clearly in the industry’s income statement. Gross profits for the smartphone rose from $13,4-billion in 2007 – the year of the iPhone – to $75.3-billion last year, equivalent to $116 in gross profit per smartphone based on shipments of 650-million units.
In comparison, feature phones saw gross profits tumble from $27,5-billion to $5,5-billion during the same period – which means feature phones last year had gross profits of just $7 per unit, based on shipments of 751-million units.
Apple is credited with single-handedly ushering the smartphone into mainstream adoption, even though smartphones had been around before the iPhone. And the company has reaped the rewards of its early market position: Apple last year accounted for 10% of all handset units, 36% of all handset revenue and 52% of all gross profits. Apple’s position is even better in the smartphone space with 21% of units, 42% of revenue and 56% of gross profit.
Samsung is the company that comes closest to duplicating Apple’s success by placing big bets on advanced smartphones. While its revenue share in the smartphone space hovered at a mere 3% to 4% from 2006 to 2009, the 2010 introduction of Samsung’s Galaxy line of smartphones vaulted the maker to the front ranks so that revenue share by 2012 amounted to 24% – a stunning eightfold increase.
In gross profit, Samsung last year was second only to Apple at 29%.
Together, Apple and Samsung account for a staggering 81% of industry gross profit. In comparison, the next most profitable manufacturer – at a very far remove – is Nokia, with a miniscule 4% share.
All other handset brands split the remaining 15%, with no single entity holding more than 3%. BlackBerry, formerly known as Research In Motion, is another casualty of the smartphone wars – once having an impregnable position, but now struggling to remain relevant even after rebranding.
The position now held by Apple and Samsung is unprecedented even in an industry known for consolidating profits, and such concentration of power and could signal an industry soon to be dominated by a duopoly, IHS iSuppli believes. The scale required to compete effectively in all regions, while investing heavily in both research and marketing, is simply beyond the reach of all but the largest brands.
The supremacy of Apple and Samsung has also meant much harder times for other smartphone brands – even for those that previously ruled the industry. In 2006, for instance, Nokia and Motorola accounted for a combined 57% revenue share in the handset space. Last year, the collective share for both stood at just 11% – a dramatic hint of how much the smartphone landscape has changed, even for former giants in the space.