Apple is one of the most profitable companies in the world, with sales of $394 billion and profits of $119 billion. But where does all this money come from?
Among tech brands, Apple is an exception in more ways than one. The American manufacturer is one of the most profitable in the new technology market. This is due to the fact that its products are mainly positioned in the high-end segment. Above all, with sales of $394.3 billion and pre-tax net profits of $119.4 billion for 2022 alone, it is one of the most profitable companies in the world.
By comparison, Microsoft's profits over the same period were $83 billion, Meta's $28.9 billion, Alphabet's (Google) $74.8 billion, Samsung's $33.4 billion, Sony's $8.4 billion and Xiaomi's $0.5 billion.
iPhones carry Apple
To understand how Apple manages to make so much money, we can start by taking stock of its various activities. In Apple's case, it's pretty clear. While the company offers a number of service solutions, such as Apple Search Ads, Apple Pay, Apple TV+ and Apple Music, its music and TV streaming services, it is hardware sales that account for the bulk of its revenue.
For proof of this, just take a look at the company's financial results for 2022. In it, the manufacturer details in part the origin of the money it was able to generate:
. iPhone: $205.5 billion in sales ;
. Services: $78.1 billion in sales;
. Watches, home and accessories: $41.2 billion in sales;
. Mac: $40.2 billion in sales;
. iPad: $29.3 billion in sales.
In concrete terms, then, the iPhone is Apple's main moneymaker. The company's smartphone division alone accounts for over 52% of sales.
Apple's high margins
These figures do not, however, explain Apple's cash-flow success. To understand this, we need to differentiate between sales and profits.
Sales are the money earned by a company. Profit is the money from which all expenses are deducted. These can range from employee salaries to the purchase of components, from marketing expenses to production line costs.
Put more concretely, profit is a company's margin, what it pockets directly from the sale of a product. Traditionally, the more expensive a product is to manufacture, the bigger the margin. For a long time, a manufacturer like Xiaomi has indicated that it wants to sell its smartphones virtually at cost, i.e. at the price it cost to manufacture them.
Apple, on the other hand, is regularly in the news for its high margins. According to estimates, the Vision Pro costs $1509 (43% of the selling price), the iPhone 14 $501 (60% of the selling price) and the iPhone 14 Pro Max $464 (42% of the selling price). Of course, these are mere estimates, more or less reliable, and often only take into account the cost of components or assembly - without labor, marketing or R&D. Nevertheless, these figures suggest particularly high profits for Apple, in the order of 40-60% for each model sold.
Misleading market shares
One last point to convince ourselves: market shares. Traditionally, the market shares quoted by the various institutes are limited to the number of units sold. If Samsung took 22% of global market share last year, and Apple 19%, it's because 22% of smartphones sold worldwide were Samsung and 19% iPhone.
But this figure does not reflect the price of smartphones, and therefore the amount each manufacturer earns. While Apple has been selling mid-range iPhones for some years now, it is best known for its high-end smartphones. By contrast, Samsung and Xiaomi - respectively in 1st and 3ᵉ place on the podium - make the bulk of their sales on accessible, entry-level and mid-range smartphones.
Conterpoint Research took a look at the sales and profit shares of the various manufacturers in the first quarter. And when we look specifically at the price of smartphones sold, the conclusion is clear: Apple is far and away in the lead. The American manufacturer alone generates half of all sales in the smartphone industry. What's more, Apple receives over 80% of the profits generated by the phone market, compared with just under 20% for Samsung and crumbs for the others.
The best-selling smartphones are iPhones
To explain how Apple manages to rake in so much profit and sales from the entire smartphone industry, we can look at last year's top-selling models. Here again, the Counterpoint Research institute sheds light on the subject, revealing that, of the 10 best-selling models in the world in 2022, eight are iPhones:
1. iPhone 13
2. iPhone 13 Pro Max
3. iPhone 14 Pro Max
4. Samsung Galaxy A13
5. iPhone 13 Pro
6. iPhone 12
7. iPhone 14
8. iPhone 14 Pro
9. iPhone SE 2022
10. Samsung Galaxy A03
While Samsung manages to get two models into the top 10, both are entry-level smartphones, priced at less than 200 euros. As for Apple, all models, with the exception of the iPhone SE 2022, are priced at over 700 euros. The higher the price of a smartphone, the higher the margins for the manufacturer.
We can also count on the fact that, unlike Samsung or Xiaomi, Apple tends to offer a rather limited catalog of references. At the time of writing, Apple's online store offers just 8 models, compared with 17 for Samsung and 28 for Xiaomi.
With so few models on sale, Apple ensures that its sales are not diluted. Simply dividing the market share of the three manufacturers by the number of models on the market, Apple achieves an average market share of 2.3% per smartphone, while Samsung is limited to 1.3% per model and Xiaomi to 0.5%. Moreover, the average selling price of Apple smartphones is much higher than those of Samsung or Xiaomi, which explains the American firm's staggering market share in the value of the smartphone industry.
Maintaining high margins, limiting the number of product references, positioning itself primarily at the top end of the market and offering multiple revenue streams: this is how Apple makes so much money.
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