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Steve's Jobs; successor Tim Cook has faced fire for his company's slipping margin.  (Source: Reuters)
Apple no longer commands the "cool" clout it once did

Apple, Inc. (AAPL) under Steve Jobs established itself as perhaps the most coveted OEM in the smartphone industry.  The late Apple CEO and cofounder, and his trusted legion of executives squeezed suppliers tighter than perhaps any company before boosting Apple's margins to gaudy heights.  And on the carrier side, carriers like Sprint Nextel Corp. (S) were willing to spend billions ($15.5B USD, to be precise), mortgaging their future to get access to the iPhone.

But Apple's ability to squeeze partners on both sides of its product chain may be coming to a close.  After a quarter of record profits, but a disappointing slip in margins, investors have sent Apple stock on a humbling plunge from a height of $705 USD/share to around $450 USD/share in recent weeks.  And Apple's partners are taking note.

A year ago, Apple enjoyed a 44.7 percent margin, but in the last quarter that figure had slid to 38.6 percent.  Apple managed a record profit, but only by growing sales volume.

The biggest threat to Apple's empire may come from carriers moving away from a model of subsidies.  Due to the iPhone popularity, carriers are willing to pay Apple a subsidy of around $400 USD per iPhone, plus a small cut of on-going monthly service revenue.  Other premium phones from Apple's rivals typically command around $250 to $300 USD.

But the last American carrier to get the iPhone -- T-Mobile USA -- will be phasing out subsidies just as it begins to carry the iPhone.  T-Mobile USA's deal with Apple has not been made public, but is rumored to be more favorable for the carrier than similar deals with AT&T, Inc. (T) and Sprint -- and less favorable for Apple.

T-Mobile wide
T-Mobile won't be subsidizing the iPhone. [Image Source: Flickr]

An entry-level 16 GB iPhone 5 costs $649.99 USD without subsidies.  Flagship Android phones and Windows Phones cost hundreds less unsubsidized.  Some fear customers will bail on the iPhone once carriers start passing the costs on to the consumers by cutting subsidies.

Both AT&T and Verizon Wireless, America's largest carriers have warmed to the idea of unsubsidized handsets after initially scoffing at the idea.

Comments AT&T CEO Randall Stephenson, "That's something we've looked at on several occasions. I kind of like that idea.  It's something we're going to be watching."

And Lowell McAdam, CEO of Verizon Wireless -- a joint subsidiary Verizon Communications Inc. (VZ) and Vodafone Group Plc. (LON:VOD) -- seemingly went back on previous comments, remarking, "[The strategy is] very intriguing."

Interesting, indeed.  Carriers may be experiencing a bit of envy that T-Mobile is not suffering the same exploitive terms they agreed to, to get the iPhone.  Down the road they will likely look to renegotiate more favorable terms.

Harvard Business School Professor David Yoffie, who specializes in corporate competition, warns that while Apple's is coming down to Earth, it's still a power player.  He tells Reuters, "Even though they're not gaining share, they're such a large piece of the market and such a driver of customer volume into their stores that people can't walk away yet.  Over the longer term, clearly there will be more and more pressure on Apple if they don't find new ways to innovate."

In other words Apple may be feeling the heat, but it's still got more cash than any other phone OEM, has superior contracts, and the biggest single-handset sales in the industry -- for now.

Source: Reuters



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RE: Obscene
By Philippine Mango on 1/29/2013 4:10:46 PM , Rating: 2
I agree with you and yes nobody's gun was put to the guy's head when he bought their products which is why education is important for consumers.


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