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  (Source: Art of the iPhone)
Cupertino electronics maker is profiting off its loyal customers open wallets

Research by fund market analysts Canaccord Genuity gave Apple, Inc. stock (AAPL) a "buy" rating and a price target of $356 per share.  What's more interesting, though is the details behind the recommendation.

The Cupertino, California-based electronics maker has an impressive profit margin compared to its competitors.  While this was a pretty commonly known fact, the analysts offer some intriguing numbers that reveal just how amazing Apple's profit margin is.

Apple in the first half of 2010 sold 17 million mobile handsets.  Samsung, LG, and Nokia sold 400 million handsets (this figure includes all phones, not just smartphones).  And other manufacturers sold 190 million handsets.  That means Apple produced roughly 2.8 percent of the mobile units sold in the first half of the year.

However, it made 39 percent of the mobile handset industry's total profit, while Samsung, Nokia, and LG posted a 32 percent cut of the total profit, and the remaining companies made a 29 percent cut.

Producing only roughly 3 percent of your industry's products, but making close to 40 percent of your industry's profit is virtually unheard of in any business.  But that's precisely what Apple is doing with the iPhone.

So why is the iPhone so profitable?  The answer is complex.  To start, because many customers are so enamored with the phone, AT&T has reportedly given Apple an extremely lucrative contract to grow its subscribers numbers.  Thus Apple makes much more pure profit per phone.

Apple also tends to feature slightly inferior hardware to its top-of-the line Android competitors.  For example, it tends to have a smaller screen, lacks a microSD expansion slot, etc.  And Apple is extremely aggressive in negotiating its manufacturing prices, pushing companies like Foxconn to deliver higher volumes at lower prices.

At the end of the day, Apple may make as much as $400 USD in profit -- or more -- off each iPhone.  By contrast Android smartphones tend to have much smaller margins.

What that means is that Apple should have plenty of cash on hand to invest in growing its business and improving its hardware to bring the fight to Android.  On the flip side, Google has a similarly lucrative market -- internet advertising – in which it remains virtually unchallenged.  Thus Google, too has a vast cash flow and the resources to make the fight in the smartphone operating system market a fierce one for the foreseeable future.

Of course, if these numbers are true, what they also mean is that Apple doesn't really 
need to win the smartphone war.  It merely needs to hang onto its current market share and keep raking in cash from its loyal customers.



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RE: ...
By Tony Swash on 9/24/2010 12:35:12 PM , Rating: 0
quote:
I think no one is surprised by this.


Except possibly the other hand set makers.

The interesting question is how can Apple do this. The simplistic response saying that its because Apple products are over priced won't really do as an explanation will it?

If it was that simple then all hand set makers would follow the same pricing strategy as they would all love to push their profits up (or even just make some).

Why do people think that other hand set makers cannot make Apple's scale of profits?


RE: ...
By Tony Swash on 9/24/2010 12:39:12 PM , Rating: 1
Could Apple's profit levels have anything to do with this do you think?

http://businesscenter.jdpower.com/news/pressreleas...


RE: ...
By marvdmartian on 9/24/2010 2:54:35 PM , Rating: 1
More likely they're #1 in customer satisfaction because owners of other hardware don't gush out loud about how MAGICAL the device is, and how they'd take a bullet for Lord Steve.

(okay, maybe that last bit is a little exaggerated.....but then, maybe it's not!!)


RE: ...
By xxsk8er101xx on 9/26/2010 12:23:30 PM , Rating: 2
So wait if Company A has 1 million customers and COmpany B has 200 customers and Company A 100k people complain while at Company B 40 people complain.

If you go by numbers clearly Company B has #1 satisfactory. 40 over 100k. If you go by percentages however ... Company A is #1.

So I guess it all depends on how you process the data.

SO should you be shocked that surveys can be manipulated!?


RE: ...
By acer905 on 9/24/2010 12:41:12 PM , Rating: 2
Most companies get large enough that if they start price gouging, they get slapped with massive fines and severe reprimands. Until recently, Apple was a tiny company that nobody bothered with. (Hence security by obscurity, the way of Apple) Now however, they have gotten large enough in certain sectors that they are soon to be hit with multiple private, and government based lawsuits due to their practices. That is why most companies simply cannot follow their obscene pricing strategies....

That, and there aren't enough HTC, Samsung, Nokie, etc. fanboys to waste craploads of their money


RE: ...
By guacamojo on 9/24/2010 1:56:14 PM , Rating: 2
quote:
Now however, they have gotten large enough in certain sectors that they are soon to be hit with multiple private, and government based lawsuits due to their practices. That is why most companies simply cannot follow their obscene pricing strategies....

Do you have a link referencing all these pending anti-competitive practices lawsuits? Or are you hoping for them?

Other smartphone makers would raise prices if they thought they could. They don't have enough brand equity to do that. Their phones are technically superior (and more expensive to make) but they're clones.

Apple has a meaningful brand. The "iPhone" brand (product, experience) is worth something and is exclusive to Apple. But Apple can't make anyone buy its products if they don't want to. If they ask for too much money, they'll lose customers. As far as I can tell, that hasn't happened yet.

On another note, here are some really expensive phones: (no, iPhone's not even in the top 10 according to this 2007 list)
http://theforrester.wordpress.com/2007/12/03/the-1...


RE: ...
By acer905 on 9/24/2010 8:50:17 PM , Rating: 2
Here are some links i could find just by searching Apple here at DT:
www.dailytech.com/Apples+Red+Hot+iPad+Gets+Hit+Wi th+Lawsuit+for+Overheating/article19180.htm

www.dailytech.com/Suit+Against+Apple+ATT+Over+iPh one+Exclusivity+Wins+Class+Action+Status/article190 01.htm

www.dailytech.com/Pending+EU+Law+Could+Force+Appl e+to+Allow+Flash+Rivals+to+Sync+With+iTunes/article 18915.htm

http://www.dailytech.com/Class+Action+Suit+Filed+A...

and finally, in case you were aboutto say those weren't anti-trust:

www.dailytech.com/Apples+Aggressive+Online+Music+ Tactics+Bring+US+Government+Antitrust+Inquiry/artic le18510.htm

At one point it seemed as if there was a new suit against Apple every day. Most likely the reason that they charge such an extreme price is to limit their market-share. Realistically, Apple wants to find a point where the most idiots will fork over cash every year, but not to the point where they could be put in a position of being a monopoly. However, their own practices of limiting their software to their own hardware is in itself a form of monopoly. Just like you cannot get a computer not made by Apple to legally run their OS, you can't get a device not Apple branded to run iOS. Therefore, an entire market is controlled by Apple, and they use brute force litigation to ensure that it stays that way, all while screwing the customers with their profit margins.


RE: ...
By acer905 on 9/24/2010 8:51:09 PM , Rating: 2
And i have to say, stupid spam filter. It should be smart enough to not care about links to DT articles...


RE: ...
By Tony Swash on 9/25/2010 5:48:41 AM , Rating: 1
Lets see what this amounts to.

Item one relates to a law lawsuit from a disgruntled consumer. Nothing to do with Apple being anticompetitive.

Item two relates to a lawsuit about the exclusive deal between Apple and ATT in the US. So its really about a local US issue rather than Apple's global phone business and it relates to a condition (ATT exclusivity) that was something that ATT insisted on and not Apple. There is no evidence that this suit stands any chance of actually succeeding.

Item three relates to a possible interpretation of a possible EU action which might impact Apple. As the article says "The problem is that Apple can easily argue that it does not have a "dominant" position to abuse when it comes to the iPhone. And even the iPad, the new clear leader in the tablet industry could stake make similar claims". Looks like fluff to me but we shall see.

Item four relates to a lawsuit by a disgruntled consumer and has nothing to do with Apple being anticompetitive.

quote:
At one point it seemed as if there was a new suit against Apple every day.


That has no actual basis in truth and your belief in such stuff is probably the result of your own unhealthy Apple-phobia.

quote:
However, their own practices of limiting their software to their own hardware is in itself a form of monopoly. Just like you cannot get a computer not made by Apple to legally run their OS, you can't get a device not Apple branded to run iOS. Therefore, an entire market is controlled by Apple,


This is so silly that even a moments thought would reveal how ridiculous it is. Just substitute the name of any other company and see how much sense it makes.

"Ford is being uncompetitive because it won't allow other companies to manufacture Ford cars"

"Sony is a monopoly because it won't allow other companies to make PlayStations"

"Boeing slams Airbus for being uncompetitive because it won't give Boeing a licence to make Airbus380s"

Do you see how silly it is.

Apple can charge high prices for its products because people really, really want them and are willing to pay what it takes to get them. That simple explanation may be irritating to some but it is the simple truth of the matter.


RE: ...
By NoSpinHere on 9/28/2010 7:20:07 AM , Rating: 2
Well said Acer. I have my first born in college and will buy a laptop for her tomorrow. She asked if she should get a Mac or HP laptop. Because of my experience with other Apple products, we're going HP and definitely not going the Apple route. End of conversation.


RE: ...
By Alexstarfire on 9/24/2010 9:06:38 PM , Rating: 2
Ummm, #6 is a diamond iPhone. I suggest you brush up on reading comprehension.

Though, I don't see how this list matters. These are very special phones.


RE: ...
By guacamojo on 9/24/2010 2:07:03 PM , Rating: 2
quote:
Except possibly the other hand set makers.

Exactly.

I don't think that Ballmer was alone in thinking that Apple wouldn't gain any real traction with the iPhone.

IMO, he (along with other corporate heads) is too much of a techie to understand the value of having a fashionable (but not too exclusive) brand. That's where the profits come from.

Look at the way other handset makers have diluted their brands. Does Samsung = high-end? Not if they also have the "free" phone at the kiosk.

Lexus and Audi don't sell at the same dealers as Toyota and VW. You don't dilute your brand like that.

Apple sells one phone. It's not the cheap one. Okay, you can get it with more or less memory. Whatever. It's still only one phone.


RE: ...
By robinthakur on 9/27/2010 10:29:37 AM , Rating: 2
Your comment is completely correct. If the fact that Apple take the lions share of profit from either the Pc market or the phone market (or any other market they enter) surprises you then you clearly you are not familiar with the lower volume/high profitability market. The fact that the iPhone has been massively successful has made it a high volume/high profit item = jackpot for Apple. The fact that the device also earns Apple revenue after its purchase through iTunes and the Appstore only magnifies that effect.

Apple views its brand as its major advantage, correctly. Other manufacturers are slowly learning this, but by offering their phones for free they are essentially saying that this is what the product is worth in the consumer's eye. The fact that Apple only release one phone a year also helps re-enforce the Fashion concept and give the device some worth unlike its ccompetitors in the Android market who sell many devices none of which make a huge amount of profit on their own.

The problem with fashion is that fashion is fickle, however, as long as Apple are the only manufacturer to pay close attention to the form as well as the function of its devices and have an over-arching inclusive design across its entire range, and is also seen as a leader in design then the problem is mitigated somewhat. Its not like anyone put any massive amount of thought into the design of the Samsung Galaxy S for example, its just a device which looks embarassingly like an old version of an iPhone.


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