Apple accounts for almost three-quarters of global mobile phone profits, according to Asymco analyst Horace Dediu, despite its market share in terms of sales only hitting 8.8%, illustrating the iPhone manufacturer’s continuing dominance worldwide. Apple’s high profit margins enabled it to snare such a high proportion of revenues during Q1 2012, even though the iPhone is its only model and its rivals all have extensive product portfolios. Dediu puts Apple’s increasing dominance of mobile phone profits down to a shift in consumer habits away from using mobile phones to make calls to using them as mobile computers, a transition that has particularly helped the iPhone maker.

“The new market disruption is the migration of a large number of demanding customers away from phones-as-voice products to phones-as-computing products,” says Dediu.

However, Dediu is quick to point out that Apple’s success is not down to the fact that it is taking profits from incumbents, such as Nokia and Research In Motion, but is more because the firm is creating a “vast new pool of profits”. He highlights that manufacturers’ smartphone profits have increased from USD5.3bn in Q1 2011 to USD14.4bn a year later, with Apple driving almost all of that growth. Apple has been so successful in driving up the money it makes via mobile phones because of the premiums it has negotiated with mobile operators. Dediu claims that 250, or half, of all mobile operators globally offer subsidies on the iPhone, charging consumers less for the device than Apple charges them, in order to boost sales, drive up revenues from other services, such as data plans, and avoid churn.

“Before shedding tears for operators, consider that although this does amount to a current transfer of profits from carriers, the decision is a popular one,” says Dediu. “Hundreds of operators have made it. It’s unlikely that they all colluded to be robbed. Indeed, they willingly hand over these premiums because the iPhone ensures a competitive advantage or preserves their customer base from churning.”

However, while Apple is booming, its rivals are not. Samsung is the only firm to post any sort of sizeable profit from mobile phones, accounting for 26% of total profits, slightly above its market share of 25.4%. In comparison, HTC accounts for around 1% of all profits, while Nokia, Research In Motion, Sony Mobile, Motorola and LG all make a loss. This is despite the fact that the mobile phone market is booming, with overall sales up 7%, smartphone sales up 47%, revenues increasing by 20% and overall profits rising 52%.

“During the first quarter this year HTC, RIM and Nokia all surprised investors with bad news,” says Dediu. “These ‘misses’ in earnings are on top of the already woeful news from Sony Mobile and Motorola, which have not had profits for years, and LG. In combination, this seems to imply a dearth of profits in an industry that is, by all measures, booming.”

Dediu suggests that alongside the high-end market disruption occurring due to devices such as the iPhone, manufacturers are also struggling at the low end of the market. He suggests that less demanding customers are switching from branded phones, such as those made by Nokia in developing mobile markets, to unbranded phones from the likes of Huawei and ZTE. He labels these new phones “good enough” to be used for voice, texting, games and media playback, with their USD30 or lower price tag making them hard to compete with.

“This commoditisation of the low end is pressuring what would normally be the fall-back cushion,” he says. “The crisis for the incumbents comes from not only being unable to shift to the new market as fast as needed but also from not having cash flows from a low end that was thought to be sustaining.”