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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: yeah
By Alexstarfire on 9/24/2010 9:18:24 PM , Rating: 2
Well, just talking to people would lead me to believe (a) can be true for any product. I understand that people can't know everything about everything, but most seem to be dumb enough to either not ask for an opinion or just ignore the opinion of those with more knowledge.

At his point in the game I think it's same to say that many may not switch off of iWhatever because they are quite firmly entrenched. Hard to switch from Apple if all the software and products you own only work/work best on Apple products. A good analogy would be looking at cell phone contracts. Once you enter a contract it's not so simple to get out. Not that you can't, but that there isn't much of a reason to. Only difference is that this "contract" I'm speaking of is never-ending. Apple isn't a alone in this regard, though they are certainly the first that came to mind.


"It looks like the iPhone 4 might be their Vista, and I'm okay with that." -- Microsoft COO Kevin Turner














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