Mobile Phone Price and Profit Chart

Horace Dediu:

You can interpret this graph as an extension of the profitability chart where the “empty” or white areas above each profit area are payments to suppliers and operating expenses. Thus the sum of empty and filled areas (above zero) are equivalent to revenues. If the sum of the empty and filled areas are greater then revenues (i.e. they extend below zero) then the difference is operating losses.

This chart beautifully exposes the myth that unit-based market share is somehow related to how successful a company is. Look at how many mobile phones Nokia and Samsung sold in the second quarter. Look at how wide the rectangle is. Then look at how much, or little, profits the two companies made.

Unit shipments is an important indicator that can be used to assess growth within a single company. But just because Samsung shipped more mobile phones doesn’t mean that it is a more successful company than, say, Apple.

Growth doesn’t matter much either. Say for instance LG’s quarter-over-quarter growth was ten times faster than Nokia. But what if LG wasn’t making much money growing? In seeking unit market share companies want to post high growth in unit shipments month-to-month or quarter-to-quarter. And that’s why companies come out with phones they can move fast and in large quantities: dirt cheap crappy phones that bring in little to no profits.

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