Apple, RIM Earning Outsized Profits, Says AnalystApple, RIM Earning Outsized Profits, Says Analyst

Apple and Research In Motion are not the largest cell phone makers in the world, but the companies are seeing huge profit margins, according to Deutsche Bank analyst Brian Modoff.

Modoff said the companies only account for 3% of the entire global wireless market, but earn 35% of operating profits. He expects the companies to continue to gobble up market share and increase their profits over the next few years despite a dip in the overall cell phone market this year.

By comparison, Modoff said Nokia had about 46% of the global mobile market share but earned 55% of operating profits. The company is reliant on low-cost cell phones for emerging markets that don't have high margins, Modoff said. The world's largest cell phone manufacturer has also been hit hard by the global economic recession, as demand for its handsets have waned and it posted a 66% drop in second-quarter profits.

Although the smartphone market only accounts for roughly 13% of all cell phone sales, that figure is expected to grow rapidly. Apple and RIM are poised to capitalize on the expansion of this market because each company only produces smartphones, and both have an entrenched user base with strong connections to the companies.

Apple has been a disruptive player in the cell phone industry. Its iPhone lineup has sold more than 20 million units in a little more than two years, and its App Store has pushed mobile applications to the forefront. Additionally, the $199 entry-level price has become the de-facto standard for high-end U.S. smartphones, even if this means carriers have to subsidize devices by as much as $400.

RIM has deep roots in the enterprise market with backend infrastructure like the BlackBerry Enterprise Server, but it is also seeing a growing number of casual users, or "prosumers." The company said nearly half of its approximately 28.5 million subscribers are non-enterprise users, and it has rolled out services like an app store and a social network to cater to that crowd.

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