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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 Tony Swash on 1/30/2013 10:38:10 AM , Rating: -1
quote:
The point being made is that while Google is firing on all pistons, Apple is fluttering.


Rubbish.

Google's key core business metric of 'price per click' declined year over year, it's been declining for a while. Android is still a cost and not a profit centre for Google. Samsung is making meaningful profits with a growing business but is the only company in the Android ecosystem doing so and it's hand set business is still inferior to Apple's.

Meanwhile Apple has the best year of any business ever and this is considered 'fluttering'. The desperate yearning of the Apple haters is pathetic and embarrassing to watch.


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
ROFL +1


"Spreading the rumors, it's very easy because the people who write about Apple want that story, and you can claim its credible because you spoke to someone at Apple." -- Investment guru Jim Cramer














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