Apple and Samsung tighten chokehold on mobile profits as others’ hope fades

I knew things were bad for smartphone makers that weren’t named Apple or Samsung, but I had no idea they were this bad. A new report out of Wall Street has a stunning conclusion: Not a single smartphone maker other than the two leaders made any profit during the first three months of the year.

The report by analyst T. Michael Walkley of Canaccord Genuity shows that while Apple has lost considerable market share to Samsung, it remains — for the moment, at least — the big kahuna of the bottom line, taking 57 percent of the industry’s profits. Samsung snagged the remaining 43 percent.

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The report calls into question the future of competition in the mobile industry. “This can’t continue,” say Chris Hazelton, a mobile analyst at the 451 Group. “No one is going to crash and burn right away, but at some point you’d expect to see consolidation.” Consolidation, by the way, is polite industry speak for companies merging or dropping out of the market altogether. That means BlackBerry, HTC, LG, Nokia, Sony, and Google’s Motorola Mobility unit are all at risk.

However, Hazelton and other industry analysts are relatively bullish about the prospects of BlackBerry, the company formerly known as Research in Motion. BlackBerry has a fairly clean balance sheet, notes IDC analyst Ramon Llamas. Perhaps more important, says Hazelton, it has a surprisingly strong residue of loyalty in the enterprise.

It’s a two-horse race in smartphones “A year ago, it was common to see previous market leaders Nokia, BlackBerry (then Research in Motion), and HTC among the top five,” says Llamas. But there’s abundant evidence that the smartphone market has quickly become a two-horse race. IDC looked at smartphone shipments in the first quarter of the year and found Samsung’s share of shipments was 32.7 percent and Apple was 17.3 percent, with LG at 4.6 percent and two Chinese companies — Huawei and ZTE — at 4.2 percent each. All the other smartphone makers combined add up to 36.4 percent of sales, each at under 4 percent. (Shipments aren’t the same as sales, of course, but the share numbers still give a very good idea of what’s happening in the market.)

I take the trouble to give those exact numbers for a reason: Neither BlackBerry nor Nokia, the primary maker of Windows phones, shows up in the top five. Both companies face a long, long road back to relevance.

The state of the smartphone industry outside of Apple and Samsung is so dire that the AllThings D website had a great tongue-in-cheek headline on a story about the Canaccord report: “Apple and Samsung share of profits declines to 100 percent.” The “declines to 100 percent” headline sounds preposterous, but it isn’t. The last time Cannacord tallied the profits, Apple and Samsung had more than 100 percent because other companies lost money. Yeah, that’s a little wonky, but it shows a teensy bit of progress for also-rans such as BlackBerry, HTC, LG, Motorola, Nokia, and Sony. There’s a smidgen of hope for some of these companies.

BlackBerry’s comeback? Maybe It’s certainly no news that BlackBerry has garnered good press as it rolled out its newest smartphones, the Z10 and forthcoming Q10. But so far, those positive reviews haven’t translated into strong sales. According to Cannacord’s Walkley, “Sales levels for the Z10 are down sharply from the first week of launch. Our surveys indicated limited consumer interest, modest carrier support, and limited store representative support for the Z10.”

Why are some analysts optimistic about BlackBerry? The 451 Group and its ChangeWave subsidiary survey enterprises that say they are committed to buying smartphones for their employees. In a recent study, 32 percent of those businesses said they will buy BlackBerrys, up from 29 percent in the preceding quarter.

Three additional points of share for non-BYOD companies doesn’t sound like much to celebrate, but 451’s Hazelton reminds me the quarter-to-quarter uptick was only the second time in the last five years that BlackBerry has shown improvement.

To be clear, the sales Hazelton expects are not from BYOD; they are purchases by the enterprise. “Once companies switch away from BlackBerry, it will be hard to get them back, but they still have tens of thousands of companies using BlackbBrry Enterprise Server, and the upgrade to BES 10 is easy,” he adds.

Microsoft’s Windows Phone platform also showed an increase in the 451 Group survey, with 11 percent of those enterprise smartphone buyers favoring it, up from 9 percent in the previous quarter. Those numbers, though, are dwarfed by iOS at 61 percent and Android at 38 percent.

As is often the case, different analyst have differing opinions, and Andrew Borg, the research director for enterprise mobility at the Aberdeen Group, doesn’t hold a positive view of BlackBerry’s chances for recovery. “Our numbers don’t support that,” he tells me. Aberdeen’s research indicates that BlackBerry’s enterprise market share will continue to shrink in the coming months. The company has lost a good deal of brand equity, and its legacy products are expensive to maintain. “The reference standard in the enterprise is iOS — so why move back to BlackBerry?”

Borg’s view of the market is global. He sees the distinction between feature phones and smartphones blurring quickly and the demand for phones that can reach the Internet soaring in the developing world. That might sound like good news for BlackBerry, but it isn’t. BlackBerry, he says, was making money by selling cheap phones in Asia and offering a device that had built-in messaging, thus saving users carrier’s SMS charges. But now that other carriers have similar features, BlackBerry’s advantage is disappearing.

Borg envisions a market led in the developed world by sophisticated devices from Apple and Samsung, while much cheaper smartphones from Huawei and any number of no-name manufacturers dominate the developing world. “It will be a race to the bottom” that could squeeze out midrange providers like Nokia, LG, HTC, and maybe even ZTE, he says.

It’s a hard fall for once high-flying BlackBerry, Motorola, and Nokia — and for Microsoft, whose Windows Mobile once was a key operating system. And it’s a hard reality for HTC, LG, and new entrants Huawei and ZTE.

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This article, “Apple and Samsung tighten chokehold on mobile profits as others’ hope fades,” was originally published by InfoWorld.com. Read more of Bill Snyder’s Tech’s Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.