Print 54 comment(s) - last by Globemaster.. on Oct 3 at 11:04 PM

  (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.

Comments     Threshold

This article is over a month old, voting and posting comments is disabled

RE: The saying is...
By guacamojo on 9/24/2010 1:38:44 PM , Rating: 2
The iphone is a new fashion, much like that watch or the designer clothes.

Well said. I'd guess that fashion plays a major role in Apple's profit margin.

It might be reasonable to guess that the typical iPhone customer is probably more fashion-conscious (and hence more willing to pay a premium for fashion) than those who think it foolish to pay a premium for a technically-inferior phone.

These customers see a value there, beyond the speed rating of the processor or the resolution of the camera. Maybe they like the UI. Maybe they like the sales and support experience. Or maybe, like many have said, because it has an Apple on it.

I still think that it's arrogant to label someone a fool for placing a value on fashion.

An aside: maybe I should have said "dang" arrogant in my previous posting to avoid the -1? Or are people really convinced that fashion-consciousness = foolishness?
How would you describe someone who buys of phone that is tied to a network that is of lower quality than others for a price that is much higher than comparable phone that have better hardware?

IIRC, AT&T is the second-largest carrier in the U.S. I'm a Verizon customer myself, but I'd hardly say that being exclusive to AT&T is that much of a detriment. How many people voluntarily get T-Mobile or Sprint phones?

As far as hardware goes, most people probably don't care about the processor speed or camera resolution of their phone. It it sluggish? Does it take lousy pictures? If not, then it's not a detriment.

Since you asked me, I wouldn't describe these people as anything other than iPhone owners. The few I know have different reasons for buying, and none of them are particularly foolish. Style was a factor for some, but not all of them.

"It seems as though my state-funded math degree has failed me. Let the lashings commence." -- DailyTech Editor-in-Chief Kristopher Kubicki

Latest Headlines

Most Popular Articles5 Cases for iPhone 7 and 7 iPhone Plus
September 18, 2016, 10:08 AM
Automaker Porsche may expand range of Panamera Coupe design.
September 18, 2016, 11:00 AM
Walmart may get "Robot Shopping Carts?"
September 17, 2016, 6:01 AM
No More Turtlenecks - Try Snakables
September 19, 2016, 7:44 AM
ADHD Diagnosis and Treatment in Children: Problem or Paranoia?
September 19, 2016, 5:30 AM

Copyright 2016 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki