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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 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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