What so hard to prove? Just look at the ASP from Apple quarter earning report and you can see that it drop from mid 500 to low 400 in 3 quarter.. And you can also look at the Ipad revenue since Ipad mini launch.. It is not just the low cost product has lower margin, it also cannibalized the higher margin product. A $350 Iphone with 35% GM contribute $122.5 gross margin. A 650 iphone with 65% GM contribute $357 gross margin. If the low cost Iphone take away one 5s sale, Apple need to sell 3 low cost Iphone (in this example) to replace the profit. It is easy to yell "Apple should have a low cost Iphone", but it is hard to balance the long term profit vs unit growth objective.
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iPhone 5s Outsells iPhone 5c by ~3.5x in Launch Weekend According to Analytics Data
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What so hard to prove? Just look at the ASP from Apple quarter earning report and you can see that it drop from mid 500 to low 400 in 3 quarter.. And you can also look at the Ipad revenue since Ipad mini launch.. It is not just the low cost product has lower margin, it also cannibalized the higher margin product. A $350 Iphone with 35% GM contribute $122.5 gross margin. A 650 iphone with 65% GM contribute $357 gross margin. If the low cost Iphone take away one 5s sale, Apple need to sell 3 low cost Iphone (in this example) to replace the profit. It is easy to yell "Apple should have a low cost Iphone", but it is hard to balance the long term profit vs unit growth objective.
True. But it might not be as many would have thought in other parts of the world. At MacWorld.idg.se you can read an article that states that in China the 5S stood for 91% of the sales/orders and in Britain the 5S "only" had 69% of the sales/orders. I believe many would have thought it would be the other way around.
The ridiculous iphone margins can't continue indefinitely, and have already eroded with the introduction of Android phones. Gizmodo did a teardown of the iphone 5, which was posted on this thread, and the total cost of materials and labor was around $200. So they *could* sell a $300 iphone 5 and make a 50% profit. They don't have to "dumb down" the phone. It's simply a decision for Apple whether or not they want to expand their user base to the "value" public the way Android did. Quality and user experience does NOT have to suffer. The calculation Apple makes is if you make 1/2 as much profit per item, can you sell more than 2x as many items? And do you want to go after that market?
You talk as if Apple was having 100% market share and would only hurt its own products with a cheaper alternative. What makes you think Apple could have sold the same amount of full-size iPads as they sold of iPad and iPad Mini combined? Most likely Apples market share would have eroded even faster. And that would have spelled trouble for margins as well. Look at Nokia, Motorola, etc. Companies with a shrinking market share almost always have shrinking margins as well. So the problem of destroying the margin by selling cheaper products can also occur just by selling less products than you expected.
To think that the iPhone or iPad margins are constant no matter what happens to inventory, sales volume etc. is just wrong.
I disagree but we will see. I know the average non the techie person $100 sounds a lot better then $200 especially when they don't see a difference besides a fingerprint sensor. Last year the 4s still sold a **** load and now this year the 5c has a little more to offer then just last year phone I think it somewhat balance out. Not completely but somewhat.. Also its not for the people that have a 5 now its people upgrading from 4 and 4s phones .
I don't disagree with what you said. But that is the tough job that Apple manage get paid multiple million of dollars to sort it out and decide on a path for the company. The media and msg board like this talk about cheap Iphone as if it is the savior for the company. You cannot discuss the reward of low cost Iphone (higher market share) without discussing the risk (lower gross margin and lower overall profit). The truth may be that there is no savior and Apple profit will enter into a long term decline no matter what they decide to do.
Apple has 3 blockbusters products in a roll (Ipod, Iphone and Ipad). Most company build on one blockbuster product and fade into the sunset as their blockbuster product fade. Smartphone market is still growing but the growth is all in the low end market now where there is no profit margin to be have. The day that Apple has to compete in the $150-$300 smartphone market is the day that smartphone become a commodity product and Apple is fight for it's survival. Hitech industry is full of has been king of the hill companies that once dominated their industry and Apple can be one of them if they cannot find the 4th blockbuster products in a timely fashion.
I agree with most of what you said. But look at the iPod market. Apple reduced prices for some of its entry level products as price levels decreased in the market, but still
managed to keep premium pricing compared to the competition. I think that is where the iPhone will have to go, too. The tough question is how to get the timing right - not being too early and sacrifice margin or too late and lose too much market share.
Timing, as you mentioned, is the key question and by sticking to the current pricing structure, management has the flexibility to change to lower pricing strategy later. By changing it now, Apple is stuck. Apple's management goal is to keep this high gross margin and high profit business going as long as they can. Market share is an issue that they can fix later by flooding the market with low priced product if they have to. The erosion of ecosystem will take years to take hold.. All the low cost Iphone discussion are pretty one sided up to this point from the analysts. There is not a whole lot of balance discussion of both the risk and reward of going down market at this point. Given how big the smart phone business mean to Apple, I am pretty sure they are willing to pay several hundred million dollars for study and strategy to map out the best possible path going forward and be very cautious in taking any step heading that direction.
Last Q, Qcom has an interesting conference call. Their CEO claimed that one of the Chinese small smartphone company took Qcom reference design and started from design to market in 60 days. That is a pretty staggering statement. Regardless of operating system, almost all smartphone use the same basic components. High end phones has a few custom parts to differentiate their products. But mid to low end phone are more or less the same at this point. When it get to the point that there is a reference design that someone can pick up and build their smartphone with, it is becoming a commodity business. Brand, package, and product design will make a big difference in the sale number. It is very much like clothing or shoes or handbag. 5c is the first Iphone product that sell base on brand, design and packing. let's see how well it will do. I went to see 5c twice over the weekend and I think there is a segment of subsidy market will like this device a lot. In my book, 5c is an excellent product that fill a hole in Apple Iphone line up at this point. It should do much better than 4s last year. It should provide some growth to the Iphone line (both unit and profit). The debate is going to be whether it will improve the number by 5% or 15%.
Ipad sales is in a mess now and last q is the first one with yoy decine. Both Ipad mini and Ipad 4 are very far behind competition while charging premium price. Let's hope that Ipad 5 and Ipad mini 2 (retina??) will make a big difference there. If I were to bash Apple management, I think Ipad is the area that deserve all the negative comments for basically has nothing new since Ipad mini launch last year.
Yep, reportedly there are dozens, if not hundreds, of mom & pop smartphone makers in China and other places.
Almost anyone can buy a MediaTek 2-8 core CPU for about half the price of a Snapdragon, pair it with a Spreadtrum modem, and fire up Android on it.
They can make a ~iPhone 3GS equivalent smartphone for $50, and sell it for not much more. That's about all the power that many people need. Or they can spend more and increase the speed, memory and screen size.
Many people become fans of a particular make, and contribute ideas that are implemented almost weekly with new OS versions.
It's kind of cool. It's like the early days of home computing.