That's a good point. What many don't realize is that Apple's gross margins have remained steady at around 39% for the past 5 years. If the XS / XS Max / XR were over-priced gross margins would be much higher.
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iPhone XR Accounted for an Estimated 32% of U.S. iPhone Sales in November
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Have you studied statistical analysis? Obviously not, which means your comment is “not to be taken seriously.”
I beg to disagree , what does a poco phone cost or a one plus . You can find Android flagship phones for 500 . Hell the iPhone 7+ is selling for 550 its screen has more PPI then a Xr and it has a dual camera setup. So can and wont is a big thing . Example the iphone 6 was about 200 dollars iPhone 7 cost about 270 to make a iPhone 8 280 a the iPhone x cost 360 dollars to make. Its the reason the sky Rockets margin that Apple is making on phones they are asking for more?
The existence of other manufacturers at lower price points and margins is beside the point.
For the last 10 years—that's 40 quarters of data—Apple's been operating at a gross margin of 39.6% with a minuscule standard deviation of 2.1%. That's a level of stability that's astoundingly high for a tech company, and when a company establishes that standard for investors...well, that's that. A publicly traded company has a fiduciary duty to its shareholders, and a decline in gross margins would be even more chaos for the stock than the (IMO overdue) correction we've seen lately.
The teardown costs relative to the MSRP markup have been very stable over the last decade. So a discussion of specs is actually irrelevant. For the given components Apple has chosen to use, everything in the last year or two with respect to markup is pretty much identical to the approach from the Jobs era.
I guess it depends how you’re defining overpriced. Overpriced in terms of “ripping people off” based on component price and usual margins, perhaps not, overpriced in terms of what people are willing to pay for a smartphone in 2018, quite possibly.
Yeah, the problem is that when performance does become an issue, or it eventually breaks, Apple has no phone model I'm interested in any longer. I don't want an XR, nor do I intend on buying one or any similar model.
I just have to hope the SE holds up until Apple gets their head back on straight (assuming that does happen, as it did for the Mac mini, and hopefully will for the iPad mini, etc.).
As someone who is colour blind, that graph, with all its pastel colours, is impossible to decipher.
I’m struggling here too. I think I’ve gone from a young early adopter to a crotchety old fart in a matter of a few years. I almost pulled the trigger on the XS this year, but I know I’ll miss the home button terribly. (Lots of people say this, but one of the many professional hats I’ve worn has been a UX designer, so I know myself better than most.) Plus that size—which is even worse with the XR.
I’m surprised they killed the SE because the niche is clear. I do have to wonder if there are other reasons for doing so. Perhaps we will see some sort of iPhone mini in the next couple years? I’m not holding my breath.
Apple's always been "disciplined" in terms of maintaining their gross margins even when SJ was in charge. The fact that gross margins have held steady while new iPhone prices have risen means component pricing is more expensive. Only way they get cheaper is if component pricing becomes cheaper.
That's not to say that what you say is false. Prices are high and there is a limit to what consumers are willing to pay when it comes to top-end smartphones.
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My guess as to why the SE was killed => there's little to no money / market for a smartphone with a screen size less than 4.7"
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"A publicly traded company has a fiduciary duty to its shareholders, and a decline in gross margins would be even more chaos for the stock" => Unless Apple can make it up somewhere like Services Revenue (TV, Movies, Music, News, Magazines) and Accessories / Wearables
It's pretty bad if you aren't color blind, too.
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Heh, and since I don't think we transition that quickly (re: young early adopter -> crotchety old fart), it's something Apple is now doing differently. I always love it when the Apple fanboys jump on me for my Apple criticisms in the sense that I'm just having trouble adjusting to the new and supposedly better. I've been on the bleeding edge of tech for almost 3 decades now, so while I might be getting old and crotchety, adapting to the new isn't an issue. What might be an issue, though, is if that new is actually better.
I think the reasons for killing the SE (if it stays dead), are that they don't want a lower priced phone in the options to keep the selling prices higher, along with a misread/misunderstanding of the data. There is little doubt that many do prefer bigger screens. As more people move to mobile as their primary computing device, they need that precious screen real-estate and will give up other factors to get it. BUT, that doesn't mean everyone is willing to do the same. People who ALSO have a laptop, tablet, or even desktop, might still want a phone sized phone. I don't need the extra real-estate.
Sorry, I think this idea is mostly baloney. While component prices certainly do have an impact on the selling price, it is mostly unlinked, especially in more premium products. While it's possible a few components cost more in the 'X' series phones, and maybe even some extra R&D costs, Apple's decision to keep raising prices is more a matter of finding out how much people will be willing to pay before a negative downturn sets in. In other words, it isn't all that connected.
Yeah, that's just wrong. It is a smaller market given higher demand for bigger phones, but it's plenty big enough. I also think Apple's method of making the smaller device the 'budget' device creates a self-fulfilling prophecy. Most die-hard Apple fans want the higher end stuff, not the 'budget' stuff.
I bought the SE because of the form-factor, even though I'd rather have had the features of the bigger models. If a SE sized/design version of the XS existed, I'd buy it (feature wise, anyway... I'd also rather have Touch ID than Face ID).
Well, they have a responsibility to the shareholders. What that entails can vary. I agree that a leveling or decline would produce stock chaos, but Apple mostly ignored that in the past (under Jobs), doing what they needed to do, instead. The stock markets are kind of a legitimized gambling operation, and have little bearing on reality. While they matter to a company, it's more important to do the right thing and let the success follow, rather than chase trying to satisfy a bunch of day-traders and algorithms.
It's pretty bad if you aren't color blind, too.
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Heh, and since I don't think we transition that quickly (re: young early adopter -> crotchety old fart), it's something Apple is now doing differently. I always love it when the Apple fanboys jump on me for my Apple criticisms in the sense that I'm just having trouble adjusting to the new and supposedly better. I've been on the bleeding edge of tech for almost 3 decades now, so while I might be getting old and crotchety, adapting to the new isn't an issue. What might be an issue, though, is if that new is actually better.
I think the reasons for killing the SE (if it stays dead), are that they don't want a lower priced phone in the options to keep the selling prices higher, along with a misread/misunderstanding of the data. There is little doubt that many do prefer bigger screens. As more people move to mobile as their primary computing device, they need that precious screen real-estate and will give up other factors to get it. BUT, that doesn't mean everyone is willing to do the same. People who ALSO have a laptop, tablet, or even desktop, might still want a phone sized phone. I don't need the extra real-estate.
Sorry, I think this idea is mostly baloney. While component prices certainly do have an impact on the selling price, it is mostly unlinked, especially in more premium products. While it's possible a few components cost more in the 'X' series phones, and maybe even some extra R&D costs, Apple's decision to keep raising prices is more a matter of finding out how much people will be willing to pay before a negative downturn sets in. In other words, it isn't all that connected.
Yeah, that's just wrong. It is a smaller market given higher demand for bigger phones, but it's plenty big enough. I also think Apple's method of making the smaller device the 'budget' device creates a self-fulfilling prophecy. Most die-hard Apple fans want the higher end stuff, not the 'budget' stuff.
I bought the SE because of the form-factor, even though I'd rather have had the features of the bigger models. If a SE sized/design version of the XS existed, I'd buy it (feature wise, anyway... I'd also rather have Touch ID than Face ID).
Well, they have a responsibility to the shareholders. What that entails can vary. I agree that a leveling or decline would produce stock chaos, but Apple mostly ignored that in the past (under Jobs), doing what they needed to do, instead. The stock markets are kind of a legitimized gambling operation, and have little bearing on reality. While they matter to a company, it's more important to do the right thing and let the success follow, rather than chase trying to satisfy a bunch of day-traders and algorithms.
"Sorry, I think this idea is mostly baloney." :
It doesn't matter what you think. All that matter is what's shown in the financials. Ever since Steve Jobs introduced the 1st iPhone, Apple's gross margins have remained steady at around 39%. If Apple was raising prices just for the sake of raising prices, that would be reflected in higher gross margins. What you feel about that is irrelevant. What you're really asking is for Apple to take a hit on its gross margins.
"Yeah, that's just wrong. It is a smaller market given higher demand for bigger phones, but it's plenty big enough." :
Do you have evidence to show that the market is plenty big enough, otherwise you're asking Apple to make an iPhone based on speculation.
I think you guys are both partly right and partly wrong.
Agree with you 100% on margins and component costs. It’s pretty clear that’s driving the bus on pricing. You don’t get that kind of quarter to quarter stability otherwise. And that’s why the price complaints so badly miss the mark.
Could Apple sacrifice some of these “features” to make cheaper devices sold at the same gross margin? Yup. Can I guarantee that their finance department has done the math and determined that would be sub optimal? Yup. So really what they are doing is the only logical corporate course of action.
The counter argument that Apple can make it up on services sales misses the mark a bit. They’ve built a customer base for a decade now with a largely closed (quasi monopolistic) ecosystem. There are also switching costs for users. The reality is that the finance department has also done plenty of demand elasticity analysis. What they’re doing is what they think 1) maximizes long-term EPS while 2) preserving the stability that investors have come to expect.
The one place I disagree with you is the SE. I think it’s too early to make a guess, even an informed one, about why it got nuked this year. I can think of several plausible explanations that aren’t “the niche market is too small / demand would be too low.” Product confusion, which you mentioned and is already a problem, may be one of them. Cannibalization is another. A third is wanting to nudge sales toward the XR, which is positioned as an entry price point with killer features (note to potential replying posters: whether this is accurate is irrelevant) but has the same gross margins as its more expensive siblings. A fourth is brand equity. I could rattle off others, but those are the big ones that come to mine.
And that’s all why it wouldn’t surprise me that as some of the costs of the higher-end components come down, we might see a re-introduction of a smaller form factor in 2019 or 2020.
I think you guys are both partly right and partly wrong.
Agree with you 100% on margins and component costs. It’s pretty clear that’s driving the bus on pricing. You don’t get that kind of quarter to quarter stability otherwise. And that’s why the price complaints so badly miss the mark.
Could Apple sacrifice some of these “features” to make cheaper devices sold at the same gross margin? Yup. Can I guarantee that their finance department has done the math and determined that would be sub optimal? Yup. So really what they are doing is the only logical corporate course of action.
The counter argument that Apple can make it up on services sales misses the mark a bit. They’ve built a customer base for a decade now with a largely closed (quasi monopolistic) ecosystem. There are also switching costs for users. The reality is that the finance department has also done plenty of demand elasticity analysis. What they’re doing is what they think 1) maximizes long-term EPS while 2) preserving the stability that investors have come to expect.
The one place I disagree with you is the SE. I think it’s too early to make a guess, even an informed one, about why it got nuked this year. I can think of several plausible explanations that aren’t “the niche market is too small / demand would be too low.” Product confusion, which you mentioned and is already a problem, may be one of them. Cannibalization is another. A third is wanting to nudge sales toward the XR, which is positioned as an entry price point with killer features (note to potential replying posters: whether this is accurate is irrelevant) but has the same gross margins as its more expensive siblings. A fourth is brand equity. I could rattle off others, but those are the big ones that come to mine.
And that’s all why it wouldn’t surprise me that as some of the costs of the higher-end components come down, we might see a re-introduction of a smaller form factor in 2019 or 2020.
Great reply! I think this is something to keep in mind in light of your response:
https://www.patentlyapple.com/paten...1000-premium-price-tiers-continued-in-q3.html
The plus phones display is unparalleled. I'm still shocked that all of Apple's new phones have worse displays.
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I don't think the 8 and 7 look dated. They look like iPhones.
The X series look like Samsung phones.
Did you think the iPhone looked dated before the X series? Millions of Android phones looked like the current X before the X existed.
Watch out for the distortion field. It is strong.
Well, then let’s take a hypothetical case. Apple sold 77.3M iPhone units Q1 2018 (Holiday quarter). Best estimates for this quarter are sales would be flat to low so let’s use 75-77M units sold (-3.0% to -0.4%) and as you know the unit sales numbers will no longer be available. And these are US based numbers so other countries’ percentages will be different.
If the percentages held up, 32% are iPhone XR, 35% are iPhone XS and XS Max combined, and the remaining 33% are divided amongst the 8/8+ and 7/7+, and a smattering of remaining X in select markets. If really true, Apple is managing to sell 2/3 of all phone sales with its XR, XS/Max lines, starting at $749 and topping at over $1200. 1/3 of all sales are from previous models ranging from $449 iPhone 7 32gb to the $849 8+ 256GB which overlaps the XR price range.
Based on this, the XR will sell about 24-24.6M units, and the XS/Max combo will sell about 26-27M units this quarter, total about 50-51.6M units for the quarter. Contrast this to the somewhat hazy outlook for the Samsung Galaxy S9/S9+ sales figures for all of 2018 at around 33M units, and the Note 9 at maybe 9-10M total in its sales year.
Part of the cost issue is the 10-15% fall of the Aust. Dollar vs. the USD. Over 2018, and some of the Telco pricing schemes. The proportions of the XS/Max sales will likely be lower in Australia.
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Wouldn’t the likelihood of more 7 and 8 Pluses be because they have been available for 1-2 years already and we’re purchased when prices and upgrade trends were still favorable plus the months?
That said, congrats to your father and friends on their XR ownership. Could you provide any anecdotal data on their services or App purchases, that would give us a few data points on the services side of Apple revenue.
I haven’t seen a Samsung phone that look like the X. I didn’t think iPhones look dated before the X and I still don’t think the iPhones before the X look dated even now.
I’m not sure where the data comes from to back your assertions. The article states estimates of 32% XR sales and 35% XS and Max sales. That leaves 33% to the older models, not 40%. XR is less expensive compared to the XS line, but $749/$799/$899 XR pricing is consistent with Flagship models (Both Android and iOS) from just 1-2 years ago which most people complained about as being “too expensive”. I don’t think even anyone on MacRumors would consider the XR a “budget” smartphone.
Consider that the 7+ 128GB @ $669 is very close to the XR and the 8+ 64GB @ $699 and 256GB @ $849 overlap the XR range.
Most research firms separate the low cost budget phones to be less than $250-$125. Low-mid tier from $250-~$400, mid tier from $400-~$600, and high end from $640-850. Apple created the Super or Premium high end with the iPhone X at $999-$1149 and followed with the XS and Max. Samsung has famously followed this pricing trend with their S9 and Note 9 lines but with much less success.
I disagree with “most people buy the cheaper models”. If the stats are correct, 67% of sales are the XR and XS/Max, Priced $749-$1449. 33% are buying the “cheaper” models from $449-$849.
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I worked with an iPhone 4 that had an inoperable home button for 3 years. Just enable the virtual home button via Settings>General>Accessibility>Assistive Touch —> On. Works great on my iPhone 6S when I need it as a backup home button.
IMO, the reason for no SE model is that the financial and engineering reasons for it do not line up - there IS a market for that form factor, but that market is not large enough for Apple to commit engineering, development, assembly and marketing resources to it. The primary reason is that, despite its smaller size, the cost of development and components isn’t necessarily much less, if at all, compared to larger and better selling models. It would require a rethink of the small chassis, a complete rework of internal structure and boards, plus the potential issues of using an upgraded CPU like the A11 and the limited battery capacity in the design. Apple would need to price this small form factor unit at at least $600-700 with 64GB-128GB storage to justify the effort and that would directly compete with the 8. Selling only 10-15M units annually probably wouldn’t make it worthwhile despite the fondness on many SE owners for the device. IMO, That is precisely why aside from one Sony unit, there are also no other android devices in this form factor either.
I agree though that “budget” phones don’t fit Apple’s image or the perceived image of Apple from its users.
I'm doing the same thing today! For the same size in the hand you get a larger display, I don't really use the zoom anyway or rarely, won't miss it.
Just did the math.
If the CIRP data is accurate and representative of worldwide iPhone sales for the quarter(big "if" on this one), the ASP would be between $855 and $1100. Using a 80/20 mix to determine sales for the cheapest model vs. the most expensive model, the ASP would be $905, which would be $110 higher than the all time quarterly record for ASP.
However, seeing as how most other countries are as heavily skewed towards Apple as the USA is, I would imagine the ASP to be in the $840-850 range (source - my gut).
Combined with the nice post-Christmas activation numbers from Localytics, I would imagine that Apple had a huge quarter.
If the CIRP data is accurate and representative of worldwide iPhone sales for the quarter(big "if" on this one), the ASP would be between $855 and $1100. Using a 80/20 mix to determine sales for the cheapest model vs. the most expensive model, the ASP would be $905, which would be $110 higher than the all time quarterly record for ASP.
However, seeing as how most other countries are as heavily skewed towards Apple as the USA is, I would imagine the ASP to be in the $840-850 range (source - my gut).
Combined with the nice post-Christmas activation numbers from Localytics, I would imagine that Apple had a huge quarter.
Well sales are way down and profits in the toilet . This should have bin a record month for Apple with releasing so many new devices .... Stock prices nearing 1/2 of what it was 3 monts ago....
And they are trying hard to consolidate there position with trade ins .... in stead of discounting... discounted phone strategy you used phone is going on the second hand market. Meaning growth if you buy you old phones back to give discount on a new one your not growing. So I just don’t see why they just not discount the new phones there is a huge margin x costs 300 to make a XR less . I think Apple strategy is failing. I would not want to be a share holder of Apple . in 3 months shares lost 1/2 a trillion dollars ...
its time for a new CEO new vision, products that work great and dont feel like a rip off
And they are trying hard to consolidate there position with trade ins .... in stead of discounting... discounted phone strategy you used phone is going on the second hand market. Meaning growth if you buy you old phones back to give discount on a new one your not growing. So I just don’t see why they just not discount the new phones there is a huge margin x costs 300 to make a XR less . I think Apple strategy is failing. I would not want to be a share holder of Apple . in 3 months shares lost 1/2 a trillion dollars ...
its time for a new CEO new vision, products that work great and dont feel like a rip off
llI think you guys are both partly right and partly wrong.
Agree with you 100% on margins and component costs. It’s pretty clear that’s driving the bus on pricing. You don’t get that kind of quarter to quarter stability otherwise. And that’s why the price complaints so badly miss the mark.
Could Apple sacrifice some of these “features” to make cheaper devices sold at the same gross margin? Yup. Can I guarantee that their finance department has done the math and determined that would be sub optimal? Yup. So really what they are doing is the only logical corporate course of action.
The counter argument that Apple can make it up on services sales misses the mark a bit. They’ve built a customer base for a decade now with a largely closed (quasi monopolistic) ecosystem. There are also switching costs for users. The reality is that the finance department has also done plenty of demand elasticity analysis. What they’re doing is what they think 1) maximizes long-term EPS while 2) preserving the stability that investors have come to expect.
The one place I disagree with you is the SE. I think it’s too early to make a guess, even an informed one, about why it got nuked this year. I can think of several plausible explanations that aren’t “the niche market is too small / demand would be too low.” Product confusion, which you mentioned and is already a problem, may be one of them. Cannibalization is another. A third is wanting to nudge sales toward the XR, which is positioned as an entry price point with killer features (note to potential replying posters: whether this is accurate is irrelevant) but has the same gross margins as its more expensive siblings. A fourth is brand equity. I could rattle off others, but those are the big ones that come to mine.
And that’s all why it wouldn’t surprise me that as some of the costs of the higher-end components come down, we might see a re-introduction of a smaller form factor in 2019 or 2020.
Uhm. Profit margins are the same as they always have been. And sales are not “way down” either. A bit of a decline YOY which has been abnormal for a growing company, sure, but not “way down.”
As for the stock price, that’s irrelevant.