Apple Inc.’s (AAPL) iPhone Fares Better than Huawei Phones despite Shift to Low-End Devices

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The iPhone maker is witnessing undeniable saturation in the high-end market for mobile devices as volume leaders like Huawei gain higher traction

Apple Inc. (NASDAQ:AAPL) is the leader in the high-end segment of the mobile market but Chinese mobile company Huawei has aggressively moved into the same market through its sheer sales volume, making itself a contender. Huawei has postured as a premium mobile device manufacturer; although it does not have astounding Apple-like margins, the company has certainly grabbed a sizeable market share and is growing at an unprecedented pace.

Huawei’s revenue grew 73% year-over-year in 2015 through its sale of smartphones and sister devices. The company brought home $20 billion from sales of 100 million smartphones, reflecting a rudimentary calculation which ignores revenue generated from other devices, which would have concluded an average selling price of $200. Therefore, it may be safely said that Huawei’s ASP for its mobile units is below $200. In contrast, Apple’s devices would have an ASP of $600 or above, considering prices of the latest iPhones. The latest IDC figures show that mobile growth has slowed down primarily due to a slump in demand for high-end devices such as Apple’s, while demand for low-end devices is still going strong.

That’s not the entire story though, as Huawei’s had a 41.7% gross profit for 2015, which is an impressive feat, while the company’s operating margin stood at 11.6% for the same period. While casting an eye at Apple, however, one must consider that the company has been selling tremendous volumes of its devices globally at an ASP higher than $600, for which it has a stupidly large revenue base which provides it great operating leverage. Apple’s operating income last year was $71.23 billion, marking 30.5% of the total revenue it generated.

It must also be noted that Apple spent a negligible share of its revenue on research & development compared to Huawei. This brings us back to the fact that even though Apple is currently at the top of the smartphone game, Huawei is a quick learner and is making stride toward creating innovative high-end devices. Their high-end devices sell at significantly lower price points than Apple’s iPhones, which is why the company might enjoy growing demand as consumer spending shifts from the high-end smartphone market toward more mid-range yet premium devices, such as the one Huawei sells. Apple’s leadership is largely subject to the continued success of its flagship device, and it better not slip off because there are great manufacturers growing at a fast pace, ready to dethrone the iPhone.

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