Apple Reimbursed Samsung $683 Million After Missing OLED Display Targets

[realtuner]

I guess if you want to exaggerate, I would agree.

Then what word would you to describe Apples #1 position in the flagship smartphone market as compared to #2 Samsung? Or to the remaining companies?

I wouldn't say never, as no one stays on top forever.

Apple losing out in the flagship market is about as likely as another major OS coming along and removing Windows from their #1 position. The markets are pretty much defined and won't change significantly.

 

[Juicy Box]

Then what word would you to describe Apples #1 position in the flagship smartphone market as compared to #2 Samsung?

Any more accurate word to describe the situation.

The definition of Obliterate:
-to remove or destroy all traces of; do away with; destroy completely.

Since Samsung is sitting comfortably at #2 with a quarter of the sales of Apple, saying that Apple obliterated them is exaggerated.

Now, if you described Blu-Ray obliterating HD DVD during the format wars, or the iPod obliterating the Zune, then it would be a more accurate statement.

The markets are pretty much defined and won't change significantly

History is full of examples of the opposite. Just look at Apple if you need an example.

 

[realtuner]

Any more accurate word to describe the situation.

The definition of Obliterate:
-to remove or destroy all traces of; do away with; destroy completely.

Since Samsung is sitting comfortably at #2 with a quarter of the sales of Apple, saying that Apple obliterated them is exaggerated.

Now, if you described Blu-Ray obliterating HD DVD during the format wars, or the iPod obliterating the Zune, then it would be a more accurate statement.

If you want to get pedantic on the exact meaning, then fine. Obliterate isn't the correct word.

Perhaps "dominates" or "commanding lead" would be more appropriate?

History is full of examples of the opposite. Just look at Apple if you need an example.

Apple as an example? Which example is that? I honestly can't think of any.

 

[Jsameds]

They could do both for even better outcome.

They could.

But Tim Cook is in charge.

 

[Mike MA]

I somehow doubt. The panels could be used for future productions and though help to reduce upcoming orders at Samsung? Exception surely would be if form factors will change, but currently you still are able to purchase X models, right?

 

[Naaaaak]

Sounds like an operations + design mistake.

 

[mschmalenbach]

That's a lot of unsold iphones Xs/Xs max.

Doubtful - most likely they just didn’t build most of their forecast when it became clear demand was lower.

 

[lec0rsaire]

The XR should’ve never had an LCD. This is on Tim. The XS will always attract people who want the more expensive model.

 

[mschmalenbach]

Wouldn't it have made economic sense to drop the price and sell more units than pay Samsung?

But maybe they cannot drop the price low enough to off-set this?

Probably not.

Apple is not about volume, but total shareholder returns. Selling more volume at lower margin means you expose yourself to increased risk with yield, after sales warranty replacements and product recalls, and with less unit margin... that translates in to smaller dividends, lower EPS and lower share price.

If Apple cared about volume they would have a bigger market share and lower margins - like Samsung. Huawai is a little different given that most Chinese companies have an artificially low cost base, and shareholders with different objectives.

 

[supergt]

I’m sure there will be features in the future that will drive upgrades, but don’t ask me what those will be. I’m pretty sure it won’t be a $2,000 or $2,800 folding tablet.[/QUOTE

I’d say only some kind of revolution in battery technology would drive those upgrades you mentioned. It would be very nice to only have to charge once or twice a week with regular use. Most other smartphone features seem pretty mature at this point.

 

[ksec]

It’s the other way around; services are higher margin—more than double that of hardware. For Q2FY19, Services had a gross margin of 63.8%, while Products was only 31.2%. Overall (combined) gm was 37.6%.

The Services, were reference to Apple Music, Apple TV, Apple News etc. These hardly makes any profits. The reason for high Gross Margin is because there are close to Zero Cost of Goods in Software, and Insurance like AppleCare. Dropbox has 6x% Gross Margin, but barely any profits. Hardware has much lower margin because their BOM cost dominates their COG. It is the Net Profits Margins that matters. ( Basically Apple shifting a lot of those to OPEX )

Not to mention Apple has 9 billions annual revenue from Google Default Search that is literally pure profits. And Apple shifted roughly $2.5B annually ( or $10 per devices ) to Services for Map, and OS development.

 

[Sedulous]

This seems bogus to me. Why wouldn’t Apple just buy the panels and use them (maybe in a future 10R variant) instead of paying a fee to get nothing?

 

[nameischarles]

The XR should’ve never had an LCD. This is on Tim. The XS will always attract people who want the more expensive model.

Agreed. I’m sure this is on all Apple sites but the Australian one is still extending and heavily promoting the XR and trade in offer. Never seen the Apple site looks so messy.

 

[mschmalenbach]

Total sales for “smartphones” is not the same as flagships. That’s like comparing total sales for Ford against sales of Ferrari.

Samsung & Huawai occupy #1 & 2 positions in smartphone sales by $ value for 2018. Apple is #3 with one third of what the first 2 have.

So not 4:1 but closer to 1:3

When it comes to profits, Apple is way out in front.
[doublepost=1562380488][/doublepost]

This seems bogus to me. Why wouldn’t Apple just buy the panels and use them (maybe in a future 10R variant) instead of paying a fee to get nothing?

You’re assuming they’re paying a fee for getting nothing vs the more likely repaying part of a discount they got upfront based on forecast volume sales. This repayment approach is quite normal in this and other industries.

 

[macfacts]

Doubtful - most likely they just didn’t build most of their forecast when it became clear demand was lower.

What meant to say was that's a lot of potentially unsold iphones Xs/Xs max. iPhones that apple guessed they were going to sell but didn't.

 

[PickUrPoison]

The Services, were reference to Apple Music, Apple TV, Apple News etc. These hardly makes any profits. The reason for high Gross Margin is because there are close to Zero Cost of Goods in Software, and Insurance like AppleCare. Dropbox has 6x% Gross Margin, but barely any profits. Hardware has much lower margin because their BOM cost dominates their COG. It is the Net Profits Margins that matters. ( Basically Apple shifting a lot of those to OPEX )

Not to mention Apple has 9 billions annual revenue from Google Default Search that is literally pure profits. And Apple shifted roughly $2.5B annually ( or $10 per devices ) to Services for Map, and OS development.

I’m not exactly sure what your point is. With a seemingly sufficient grasp of the core accounting concepts, you shouldn’t really have much problem understanding why Apple is focusing on expanding service revenue and avoiding dropping iPhone prices.

Last quarter, operating margin was about 23%. Apple wants to grow that. Doesn’t it make sense that the way to do that is to change the revenue mix to increase the amount of very profitable Services revenue and avoid squeezing gross profit on hardware by reducing iPhone prices?

Last quarter, Apple had net revenue of $47 billion in Products and about $11 billion in Services. That led to gross income (profit) of about $15 billion from Products and $7 billion Services.

Yes, net profit margin is what matters—but that’s directly correlated with gross margin, no matter how the overhead (operating expense) is allocated. Net income was about $12 billion, and obviously a good chunk of that came from the $7 billion in gross profit on Services (and the rest from the $15 billion in Products gp). Services revenue definitely punches above its weight when it comes to net income contribution, and as Services revenue increases, so will net margin. Like you said, mostly because no BOM cost.

PS That DropBox makes little profit on their high gross margin business only indicates their operating expenses are extremely high. That’s not a problem Apple has, even with their large R&D spend.

 

[realtuner]

Samsung & Huawai occupy #1 & 2 positions in smartphone sales by $ value for 2018. Apple is #3 with one third of what the first 2 have.

So not 4:1 but closer to 1:3

Sorry, that’s wrong. Samsung and Huawei only lead in unit sales, not revenue or profits. And they both do it the same way - selling a few flagships along with a boatload of low-end phones in the under $100 range. It’s why they both have an ASP in the mid $250 range, 1/3 of Apples ASP.

Last quarter Samsung’s entire IM division (feature phones, smartphones, tablets and LTE/5G cellular network equipment) had $23 billion revenue. The iPhone alone had $31 billion. Huawei's entire company had revenues of $26 billion.

Sorry, but it's not even close.

 

[d5aqoëp]

And Nokia has died of a cheap-price strategy.

Thoroughly and comprehensively wrong.

Nokia died only because they couldn't match iPhone in terms of hardware and software. Pricing had nothing to do with it.
But now a days with Android being more mature than iOS and hardware wise, all manufacturers are on level playing field. Apple is having a hard time to match Nokia especially in pricing. Apple is living off it's old charm and it is wearing off fast.

 

[MacBH928]

they will just use them for iphone XI, XII, and XIII...

You can't grow into infinite, and you don't expect to sell 100M every year forever.

 

[nickgovier]

.

 

[Shanghaichica]

4:1 for flagships, but Samsung sells a lot of $50-75 phones. Of course, there’s no profit in those sales. Apple wins (most of) the profits in the smartphone market, that’s for sure.

Well Samsung probably sell around 50 million of their latest flagship every year. Then you have to factor in their older flagships. So maybe around 100 million flagship phones. Apple are probably selling around 200 million iPhones a year which includes the latest iPhone and older iPhones. So it’s probably closer to 2:1 for flagship phones in Apple’s favour.

I’d imagine Samsung’s sales are made up of 40 % flagship phones and 60% midrange/budget phones. Obviously Apple’s sales are 100% flagship because they don’t sell budget phones.

 

[torana355]

I wonder why those Pixel are not topping the sales charts if they are so great. They should be generating lines at Best Buy and a 3 month wait to here some tell it. It is doing neither

The pixel has a great camera but the masses are brainwashed into thinking Apple = Best. It would not matter if Google released the perfect phone, Apples name would still see them selling more units.

 

[Shanghaichica]

Yes, I do, dear!
If you like Samsung, pay Galaxy S10+
https://www.samsung.com/us/mobile/phones/galaxy-s/galaxy-s10-plus-1tb-unlocked-sm-g975uckfxaa/

In the UK I can get a 128GB Samsung Galaxy S10+ with expandable memory for £899. A 64GB XS max cost £1,099 in the UK. For the price I paid for my XS max 256GB (£1,250) I could have gotten a S10+ with 1TB of storage and gotten a free pair of galaxy buds.

 

[realtuner]

Well Samsung probably sell around 50 million of their latest flagship every year. Then you have to factor in their older flagships. So maybe around 100 million flagship phones. Apple are probably selling around 200 million iPhones a year which includes the latest iPhone and older iPhones. So it’s probably closer to 2:1 for flagship phones in Apple’s favour.

I’d imagine Samsung’s sales are made up of 40 % flagship phones and 60% midrange/budget phones. Obviously Apple’s sales are 100% flagship because they don’t sell budget phones.

Your numbers are completely wrong.

Samsung sells maybe 20-25% flagships a year (older and newer models combined) and 75-80% of super cheap low end phones. The proof is in their ASP, which is routinely in the $250 range.

Here's an example using my figures at 75:25:

3 x $50 feature phones.
1 x $850 flagship phone.

Total revenue is $1,000 and ASP is $250.


Let's try your figures of 60:40.

6 x $50 feature phones.
4 x $850 flagship phones.

Total revenue is $3700 and ASP is $370.


A $370 ASP for Samsung is far too high. It's mathematically impossible for Samsung to sell more than around 25% flagships a year based on their ASP and it's likely closer to 20%. You can try it yourself by plugging in different combinations.

The same holds true for the iPhone. It's also mathematically impossible for Apple to have a $750 ASP and also sell a large number of older, cheaper phones (like the 7 or SE when it was available). This is a tactic used by people to try and claim their newer devices aren't selling and people are only buying the cheaper models. As with Samsung, the ASP doesn't add up. Apple primarily sells expensive flagships and Samsung primarily sells feature phones.

 

[Shanghaichica]

Your numbers are completely wrong.

Samsung sells maybe 20-25% flagships a year (older and newer models combined) and 75-80% of super cheap low end phones. The proof is in their ASP, which is routinely in the $250 range.

Here's an example using my figures at 75:25:

3 x $50 feature phones.
1 x $850 flagship phone.

Total revenue is $1,000 and ASP is $250.


Let's try your figures of 60:40.

6 x $50 feature phones.
4 x $850 flagship phones.

Total revenue is $3700 and ASP is $370.


A $370 ASP for Samsung is far too high. It's mathematically impossible for Samsung to sell more than around 25% flagships a year based on their ASP and it's likely closer to 20%. You can try it yourself by plugging in different combinations.

The same holds true for the iPhone. It's also mathematically impossible for Apple to have a $750 ASP and also sell a large number of older, cheaper phones (like the 7 or SE when it was available). This is a tactic used by people to try and claim their newer devices aren't selling and people are only buying the cheaper models. As with Samsung, the ASP doesn't add up. Apple primarily sells expensive flagships and Samsung primarily sells feature phones.

Apple’s older phones (not including the SE) are still quite expensive. They sell here for £600-700 brand new. Apple don’t sell cheap phones period. Even their older flagships are still expensive.