Profit Margins in Mobile Phone Business
The mobile phone business is very profitable, with a typical margin of around 40%. Flipping phones is a rapid-fire, high-volume game with low profit margins that depend on finding a steady source of well-graded wholesale cell phones. Value-added resellers enjoy higher profit margins than phone flippers because they make a greater contribution to the quality of the phone. Overall, phone reseller markups range between 25% and 100% while profit margins range between 21% and 50%.
Net margins for the telecommunications sector average about 12.5%, with gross profit margins running as high as 70% to 80%. The telecommunications equipment area tends to generate higher net profit margins than the telecommunications service area. This is likely due to the intensely competitive nature of the service marketplace.
Selling used mobile phones also tends to deliver better profit margins than selling new phones. Retailers are lucky to get margins above 3-5% on new phones due to high retail prices and control of the market by manufacturers. But greater freedom and low wholesale prices of used phones allow margins of 10% or more, despite retail prices 65-75% lower than new.
A Closer Look at Samsung’s Margins
Samsung aims for about 8-10% profit margins on its smartphones, but specific models and market conditions can affect this. While Samsung has high market share, it has decided to focus on maintaining shipments while improving profit margins instead of expanding market share. Although Samsung achieved high profit margins recently, Apple still obtains the highest profit margins in the cell phone industry based on product sales. Factors like production costs, competitions, and product pricing can significantly impact profit margins.
For example, Samsung’s smartphone division’s profit margin degradation provides an impetus for increasing memory prices. Regardless, Samsung is at a crossroads with its degrading smartphone profit margin. This division is the company’s largest, and profits are forecast to drop.