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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 ktemple on 1/30/2013 10:33:04 AM , Rating: 2
Well to be fair, most of this talk is really just poorly-worded speculation that a sales decrease is imminent. What they're trying to say is that the iPhone is about to have this reckoning -- not dissolution, just... abrupt humility. And to be honest, unless Apple does something drastic, it's probably true.


RE: Get ready 4 it
By TakinYourPoints on 1/30/2013 11:15:21 AM , Rating: 2
That sort of speculation on success or failure doesn't really interest me no matter what platform or ecosystem we're talking about. I never once speculated about Android failing in the market because it was as flawed as it was for so long, that Microsoft would fail at making a game console work, or that Amazon would fail with e-readers (still my favorite tech gadget!). People have speculated demise for Apple for over a decade (the iPod is a fad, the Mac is a fad, the iPad is a fad, etc). I can't count the number of times I've heard someone say that the company has peaked. Its just a pointless exercise IMO, wait until its actually peaked!

And if we are speculating about drastic changes then I'd guess that Scott Forstall's departure from Apple is a very positive thing for the iOS UI. He might be the guy that put a full fledged OS into a phone but many of its current negative attributes like skeuomorphism are his. But again, speculation, hypotheticals, meh, not my thing.

I'd rather get excited or disappointed once something actually happens :)


RE: Get ready 4 it
By ktemple on 1/30/2013 11:31:54 AM , Rating: 2
That's no fun, really. Speculation is fun. And lucrative if you're great at it!


RE: Get ready 4 it
By TakinYourPoints on 1/30/2013 11:51:44 AM , Rating: 2
I'd say I'm 70% technical when it comes to trading. When I rode Apple down last year it was mostly based on technical analysis.

Some fundamental analysis is good, everything else is noise that is only sometimes useful as a contrarian indicator. ;)


RE: Get ready 4 it
By retrospooty on 1/30/2013 11:37:02 AM , Rating: 2
"People have speculated demise for Apple for over a decade "

No-one is saying Apple is doomed. At least not me, or anyone I have seen here. Let me take a different angle and put it another way... When looking at Apple's place in the market and clout when making deals, with suppliers and carriers.

iPhone 2007-2010. No competition at all. Nothing in the league. (BB sales are still strong and growing, but that is how sales lags tech. People take a long time to get on and off after tech changes. )

iPhone 2011. Android is starting to sell strong, but its still not in the same league with IOS or iPhone.

iPhone 2012. Android as a platform is dramatically outselling iPhone, even doing well on the high end with a few devices like the GS3 and Note2 that are by your own insistence, still not up to par.

iPhone 2013. Look at the latest 5 inch Android 1080p superphones and JB 4.2 and tell me anything in the past is the same as today?

Whether you agree or not, Todays Android superphones are way the hell better than 2012's. When making deals, it matters. THe market sees Samsung outselling Apple, and Android outselling IOS 5 to 1 and climbing. High end Low end or not, these things all factor in and Apple will have trouble making those same deals.

Dont say trends aren't agreeing, because today's trends, sales and profits are made on last years products, and designs and deals made years ago. If you dont see that changing then you are kind of blind.


RE: Get ready 4 it
By TakinYourPoints on 1/30/2013 11:48:57 AM , Rating: 2
quote:
The market sees Samsung outselling Apple


True if you are including low end devices, and in the context of the paragraph you are clearly talking about superphones like the GS3 and GN2.

We'll have to agree to disagree about the significance of the low end. They don't help carriers sell data plans, and that's what phone companies are in it for these days.

ktemple put it very well in another post here. Carriers want to sell data, this era's SMS is data, and expensive data plans are sold by high end phones. Obviously carriers also like selling numerous low end phones, profit is profit, but when over half of mobile data still comes from iOS you can be sure that carriers will continue to court the iPhone in order to sell those data plans.

What will change this is if low end devices end up using similarly profitable data plans, but that seems to be a completely different market segment.


RE: Get ready 4 it
By retrospooty on 1/30/2013 12:32:05 PM , Rating: 2
When I say super phones, I am talking about the latest 1080 p Android super phones. Not that it's really part of my point but those low end phones do sell data plans, many of them are free with a 2 year plan... And to be clear, I'm not saying Apple is going to be in trouble, just not as profitable as today.. Right now they are ridiculously profitable in a record breaking way. They will very likely go down to merely extremely profitable.


RE: Get ready 4 it
By TakinYourPoints on 1/30/2013 1:56:59 PM , Rating: 2
If you're limited to 1080p phones then the number is even smaller, a niche of a niche compared to those other high end and low end devices. They're pretty statistically irrelevant.

quote:
those low end phones do sell data plans, many of them are free with a 2 year plan


That doesn't account for the numerous Android phones that are on unsubsidized or prepaid plans. That is a huge market for them, not to mention an often touted advantage of the platform.

This metric is important, iPhone users rack up the highest carrier bills: http://allthingsd.com/20130130/wireless_bills_by_o...

The article makes mention of this:
quote:
“We think it has to do with their data plans and carriers, rather than their usage habits,” CIRP co-founder Michael Levin explained. “They are all on expensive data plans, unlike Android users, some of which are on prepaid or unsubsidized plans with regional carriers.”


Given that iOS makes up well over half of mobile internet traffic and app downloads, I'm not so sure about usage habits not being a factor. They are clearly being used for internet and apps, otherwise you wouldn't be seeing iPhones with 4GB+ plans, nor would you see sales figures like this: http://images.eurogamer.net/2013/articles/1/5/5/2/...

In any case, as long as iPhone users keep racking up big data plans and overages, carriers will keep bending over backwards to keep them.


RE: Get ready 4 it
By retrospooty on 1/30/2013 2:42:05 PM , Rating: 2
So to you it's as if nothing at all has changed in the past 2 years, and it's business as usual. Okay well, good luck with that. I don't know what else to say , we will have to wait see what will happens.

I still say if Apple keeps on the same course their market will erode somewhat. Of course if they get innovative again that could always change.


RE: Get ready 4 it
By TakinYourPoints on 1/30/2013 6:13:18 PM , Rating: 2
No, I'm not saying that at all, there is clearly more competition and an expanding market out there that is being led by the low end. I never denied that.

Again, until there is functional and practical crossover between devices like the iPhone and the very-cheap Android devices that make up the bulk of its installed base, it won't mean very much.

What's important is that iOS makes up the majority of mobile internet traffic, mobile ad revenue for developers and for Google, developer profits, and is installed on the majority of high end hardware (again, sells more than the entire Galaxy series combined, makes up 80% of AT&T's sales, 60% of Verizon's sales, etc).

It leads all of these metrics by a significant margin despite Android being on 5x as many devices. Its the result of iOS only being on high end hardware that is actually used for mobile internet and applications while Android is installed on pretty much anything, thus diluting those usage figures.

Again: http://allthingsd.com/20130130/wireless_bills_by_o...
http://images.eurogamer.net/2013/articles/1/5/5/2/...

The expansion of the overall market is great, and that's clearly a big and important change. However, we're a very long way before we can even consider erosion of the high end space that Apple works in. I don't believe its even a possibility until mobile hardware has plateaued for several years, thus allowing for cheap Boost Mobile priced giveaway devices to catch up with and be as capable as the high end.

We're nowhere near a ceiling for that just yet. It seems just as likely as netbooks eroding the sales of $1200+ notebooks, quite honestly. Again, different and discreet markets.

Where Android is exploding does not cross over with markets occupied by devices like the iPhone, GS3, or Droid DNA, they are very separate things. The expansion of both also does not mean that there is a reduction in the other.

They all expand together.

If you want a netbook, you'll get a netbook, if you want a real laptop, you'll get a real laptop. The same thing applies with smartphones. It isn't a zero sum game since there's so little crossover.


RE: Get ready 4 it
By retrospooty on 1/30/2013 8:02:29 PM , Rating: 2
In the high end space is where Apple has been caught up with and surpassed... But I'm not going to debate it any further... Your mind is like a clenched fist. You won't pry it open a tiny crack, so we'll just have to wait and see.


RE: Get ready 4 it
By TakinYourPoints on 1/31/2013 5:42:08 PM , Rating: 2
quote:
In the high end space is where Apple has been caught up with and surpassed


No it hasn't. Where does this idea come from? If you say something then back it up.

Facts:

- The iPhone sells more than the GS2/GS3/GN2 combined, which by turn sell far more than other high end smartphones by LG/HTC/Motorola

- Over half of global internet traffic comes from iOS

- Google makes most of their mobile ad revenue from Android

- The majority of app downloads and usage come from iOS.

You'll see a shift in those figures when Android catches up in the high end space. Right now the expansion in the market on the Android side is primarily in the low end, which is why you see Android installed on more devices but lower "high end" style usage.

quote:
Your mind is like a clenched fist.


Yes, its like when I argue with a religious person trying to convince me that evolution isn't real but they can't give me any hard evidence that its really all the doing of a man in the sky.


RE: Get ready 4 it
By ritualm on 1/30/2013 7:51:07 PM , Rating: 2
The high-end smartphone market is smaller than that of the middle and low-end. The only part of your post that is remotely true is carriers use iPhone-derived revenue to subsidize everything else, because it has been shown and proven - time and time again - that Apple users are willing to pay for the same things that they could have gotten for less/free elsewhere.

Every other point from yours truly makes no sense.


RE: Get ready 4 it
By Decom on 2/11/2013 10:12:04 AM , Rating: 2
And now we have this little nugget to take away from Tony/Takin :-

Just in from the "Customer Loyalty Engagement Index 2013"
from Forbes.

http://www.forbes.com/sites/marketshare/2013/02/05...

Some relevant points:

i) Samsung (taking the #1 spot from Apple in Smartphones),

ii) Amazon (which took the #1 spot from Apple in Tablets) and kept its #1 ranking for its Kindle E-readers


“And I don't know why [Apple is] acting like it’s superior. I don't even get it. What are they trying to say?” -- Bill Gates on the Mac ads














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