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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: Get ready 4 it
By 91TTZ on 1/29/2013 6:05:41 PM , Rating: 3
Apple's problem is that while the ASP has remained the same, demand is decreasing. Their market share is slipping while Samsung's is increasing.

Tablets are also becoming commodity items so the profit is drying up quickly.

RE: Get ready 4 it
By TakinYourPoints on 1/29/13, Rating: -1
RE: Get ready 4 it
By ComputerJuice on 1/29/2013 8:44:42 PM , Rating: 2
High price market maybe. owns the high end market? what. ever.

RE: Get ready 4 it
By TakinYourPoints on 1/30/2013 9:02:59 AM , Rating: 1
It is certainly a higher end device than something like the now overpriced GS3 if we're looking at things like performance, display quality, build quality (even Android Authority destroyed a GS3 before they could make a crack in the iPhone 5), and battery life.

The iPhone also makes up over half of mobile smartphone traffic, app downloads, and Google mobile revenue (even over their own Android) despite there being more Android devices out there. That sort of usage doesn't come from a low end Samsung Prevail running Gingerbread that you picked up for nothing at Boost Mobile, let alone the even lower end Android-running featurephones out there.

I'd put it in the high end category for sure. Given that the iPhone also sells more than the high end GS2/GS3/GN2 combined, which by turn outsell anything by LG, HTC, or Motorola, then yeah, "owning it" that part of the market doesn't seem like a stretch either.

So yeah. What. Ever.

RE: Get ready 4 it
By 91TTZ on 1/31/2013 10:21:01 AM , Rating: 2
But Apple itself is bowing down to those pressures. When it became obvious that lower-priced tablets were the "sweet spot" in the market, analysts predicted that their sales would climb while the higher-end device sales would fall.

Apple said that they had no intention of coming out with a device to meet that lower price-point.

However, they eventually saw the writing on the wall and quickly came out with the iPad mini that was much less expensive than the original iPads.

It turns out that the analysts were right and the iPad mini is outselling their full-size iPad4 by about 4 to 1, bringing their overall profit per device down.

Again, it's not like they're in trouble right now, but the writing is on the wall. The future will see a further decline in profits for mobile devices. Mobile will become more widespread and cheaper. Like I said, they'll become commodity devices.

RE: Get ready 4 it
By Tony Swash on 1/29/13, Rating: -1
RE: Get ready 4 it
By StormyKnight on 1/29/2013 11:15:07 PM , Rating: 2
You mean most profitable behind Exxon/Mobil and Chevron, right?

RE: Get ready 4 it
By Tony Swash on 1/30/13, Rating: -1
RE: Get ready 4 it
By retrospooty on 1/30/2013 8:51:50 AM , Rating: 2
I dont see anyone implying that Apple is in any serioud financial trouble. The point being made is that while Google is firing on all pistons, Apple is fluttering. The largest improvement to the iPhone since its initial release in 2007 was a 4 inch screen and 4G... Things the competition had 2 years earlier. Of course, 2 years ago, the iPhone was easily the best thing out and now it isn't. What you are seeing is the beginning of a shift. I know you will remain in denial on that, but at least get straight what is going on.

RE: Get ready 4 it
By TakinYourPoints on 1/30/2013 9:11:54 AM , Rating: 1
Do you even read your own links?

I hold shares of both Google and Apple, but I haven't been adding to my Google holdings lately. I've bought more Apple. Because when everyone tells you nothing can go wrong, something always does.

He also mentions the same things I have, how Apple's PE is insanely low, a mere 10 compared to Microsoft's 15 and Google's 22 despite continued rapid sales growth and a massive cash hoard, and that the stock is currently undervalued (I stopped shorting it last month).

However, for no reason other than your gut instinct they have "peaked".

All businesses peak, no question, but I don't presume to know when that will happen. People have been saying the same about Apple and Microsoft for decades, and making such calls is a fool's game, especially when reality continues to point the other way.

RE: Get ready 4 it
By Tony Swash on 1/30/13, Rating: -1
RE: Get ready 4 it
By retrospooty on 1/30/2013 10:40:12 AM , Rating: 3
Way to take one sentence out of context and ignore the entire point. Your slipping dood.

RE: Get ready 4 it
By Cheesew1z69 on 1/30/2013 11:30:58 AM , Rating: 3
The constant knob slobbing of Apple is pathetic and embarrassing to watch.

RE: Get ready 4 it
By maugrimtr on 1/31/2013 5:20:48 AM , Rating: 1
Oversimplifying things won't get you anywhere, Tony.

He's not purchasing Google stock because its price point mirrors Apple's from last Spring - it assumes Google's performance will continue perfectly which is questionable. Google's performance in 2012 was exceptional seeing unexpected successes in all of its markets - the decline in price per click is already priced into the stock - everyone and their dog new this would fall as mobile dominated online habits, competition reared its head, and pervasive push towards legislating/regulation personal tracking continues towards its inexorable conclusion.

Apple stock meanwhile has taken a beating as its bubble deflated. Unless Q1 results are an utter disaster, the price is now more realistic and is far more likely to increase (perhaps even inflate insanely if people are feeling particularly emotional).

Any rational investor would be tentatively holding Google shares and buying into Apple. The irrational investors will pump up Apple's price and not back out until it collapses as they did earlier in the year but the rest of us will go back to shorting it for another windfall.

Apple had its best year alright - falling market share, falling margins, increased competition, no sign of innovative new niches to expand into, etc. Stop pinning all of your justifications on a single year's "fluttering" performance and focus on the question of greater concern to investors. What will Apple be doing 2-5 years from now? Will it have lost even more market share? Will the market become saturated? What happens when US telecoms remove smartphone subsidies and customers see the iPhones real price to them? What the heck are they doing in Asia? How will Windows 8 and BlackBerry 10 change the equation for business users?

Honestly, you are such a fanboi that I love you. I need people like you so my shorts are profitable. Carry on!

RE: Get ready 4 it
By retrospooty on 1/31/2013 7:25:21 AM , Rating: 2

RE: Get ready 4 it
By 91TTZ on 1/31/2013 10:23:30 AM , Rating: 1
Do you intentionally ignore reality or are you just too stupid to see it?

You routinely ignore any valid points people bring up and just respond with Apple propaganda.

RE: Get ready 4 it
By Cheesew1z69 on 1/31/2013 10:40:01 AM , Rating: 2
Do you intentionally ignore reality or are you just too stupid to see it?
Both it seems...

RE: Get ready 4 it
By retrospooty on 1/31/2013 1:50:06 PM , Rating: 2
"You routinely ignore any valid points people bring up and just respond with Apple propaganda."

LOL, I know... Although I don't think he is an Apple shill like Tony. He is more debating to try and prove he is not wrong than to propagandize Apple. Either way its equally pointless.

"There is a single light of science, and to brighten it anywhere is to brighten it everywhere." -- Isaac Asimov

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