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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 ktemple on 1/30/2013 10:13:53 AM , Rating: 2
Data plans.

The iPhone sells data plans. More than anything else. Ever. Carriers want to sell data plans. Carriers want the iPhone. So they subsidize it. They kind of don't REALLY subsidize it as far as the CUSTOMER is concerned, but by then Apple has already pocketed their cash. Apple also has profit-sharing written into their contracts, lol. It's kind of crazy, but the carriers sign off on it because more profit is more profit whatever angle you look at it from.

This honestly was all made possible by the greed and lopsided business models of the CARRIERS, not Apple. Their core and long-term strategies have always been to create as many services as possible -- to charge as much as possible. Back in the day it was texting, a service that costs them practically nothing to furnish, but as far back as I can remember has always run us consumers between $15 and $25 dollars a month. It's a gold mine.

This era's SMS is data. The only difference between 2013 and 2008 is that Android isn't stupid anymore and is finally on phones that a person would actually want to use. The so-called Great Death Threat to the Apple throne is merely that they finally have real-life competitors as of late 2011. And no I don't mean phones you liked, I mean bona fide marketplace competitors.


RE: Obscene
By dgingerich on 1/30/2013 5:01:23 PM , Rating: 2
yeah, it certainly doesn't help that the carriers are charging way too much for data, generating as much, if not more, margin than Apple, and not spending any of it on expanding their capabilities. (Oh, yeah, AT&T is spending $1 billion on expanding their network, while they paid $10 billion in dividends to their investors. That $10 billion should have been reinvested in expanding the network capabilities. That's the reason I left AT&T for T-mobile.)

Apple is certainly doing their share of fleecing their customers, though.


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