Strategy Analytics' Claims of Samsung, Apple Profits Draw Controversy

Apple Insider has posted a fairly compelling breakdown of the claims that research firm Strategy Analytics is making regarding Apple's profitability versus rival Samsung's ? claims that we, and a number of other websites, reported yesterday.

(To be fair, we did call out fairly early on that Strategy Analytics' figures were estimates, since neither Apple nor Samsung specifically break out the operating profits of their smartphone business to such great detail. Consider these estimates to be as valid a claim as the all of the various "It's coming out [date]" stories that get posted about unreleased Apple products.)

First up, Strategy Analytics makes the claim that Samsung's "handset division" pulled in $5.2 billion of operating profits for the second quarter of 2013. This is where we start getting into a bit of a mess, terminology-wise. On its quarterly earnings statements, Samsung only reports operating profits for the entirety of its "IT & Mobile Communications" segment, which consists of Smartphone, Tablet, PC, and Networking sales. In the second quarter of 2013, this was approximately $5.64 billion in total operating profit.

The company does, however, break out a "mobile" category from its "IT & Mobile Communications" segment in terms of overall segment sales ? suggesting that the company's sales of its tablets, smartphones, and PCs ate up approximately 97.2% of its total "IT & Mobile Communications" segment (presumably, Samsung is just excluding networking sales in this "mobile" category).

That percent, applied to Samsung's operating profits for that segment, still doesn't quite get us to Strategy Analytics' estimate of $5.2 billion in operating profits for the company's "handset division," but it's getting closer.

So where does this number come from? We're not sure. And it's a key element of Strategy Analytics' implication that Samsung is passing Apple in smartphone profitability.

We do have a better sense of where the research firm is pulling in its estimate of $4.6 billion for Apple's iPhone operating profit ? and it's not good. As Apple Insider's Daniel Dilger pointed out, it appears as if Strategy Analytics is taking a look at the net sales figures that Apple reports for all of its products ? noting that iPhone sales account for roughly half of the company's total sales.

So, what does Strategy Analytics do? It seems to divide Apple's total reported operating income for the quarter ? $9.2 billion ? by two to come up with its $4.6 billion figure for iPhone operating profits. This, as Dilger notes, is a no-no.

"That's based on the faulty assumption that Apple earns the same profits on iPhone as it does across the rest of its business. Apple doesn't report margins for each business segment, but it is well known that Apple earns more from iPhone sales than from other product segment," Dilger writes.

In the end, we get a lot of fuzzy math, and don't expect this to change. Neither Samsung nor Apple is going to call out the operating profits of its individual product lines in an effort to avoid comparisons like the ones Strategy Analytics is attempting to make regarding strength or weakness in a particular area.

What would bolster Strategy Analytics' estimates? If we had a better percentage of how the individual components of its "IT & Mobile Communications" segment contribute to the category as a whole for sales or operating profit, we could at least drill down a bit instead of attempting to compare the entire category against Apple's iPhone line. On the flip side, if we had a sense of just how much Apple's iPhone business contributes to the company's $9.2 billion operating profit, we could get a better sense of how much total cash the iPhone shovels into Apple's bottom line.

According to the latest figures from IDC, Samsung is still besting Apple in the smartphone market with a total share of 30.4% to 13.1% as of the second quarter of 2013. Apple, on the other hand, enjoyed a first-quarter dominance in the tablet market, besting Samsung with a total share of 39.6% to 17.9%.

Source: http://feeds.ziffdavis.com/~r/ziffdavis/pcmag/breakingnews/~3/2INJTQEuF9w/0,2817,2422379,00.asp

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