Originally Posted by cameronj
Great, except none of those things benefit Apple to the tune of the $300 that was lost. The first benefits Apple mildly, since they may sell more Apps. But it will clearly push their manufacturing partners very hard to sell a ZERO PROFIT phone, meanwhile eliminating Apple's stream of upgraders. The second only benefits the carriers. The third, again, benefits Apple not at all.
Thank god actual businesspeople run Apple.
Business people who sell the cheapest iPod touch at $220. Apparently at a profit and not much threat to margins. Which are quite high across the entire iPod line.
As has been pointed out in this thread - iOS is also a platform. Were they a car manufacturer with a huge brand then taking 50% of profits from 4% of all cars sold would be great. However the iOS platform needs developers, and to get developers it needs to be on a certain percentage of devices. In particular iOS is now in the position to be developers first choice ( see Angry Birds) and that makes a difference to people buying phones. If iOS apps are 6 month later than Android apps then you lose custom.
Since Apple have already worked out how to sell a device to undercut the competition in the one market they dominate, it makes sense that they would do it here. Create a device for people who would otherwise go to Android's cheaper phones, but make it somewhat undesirable - not enough RAM or storage so people get lured in but buy the next higher model ( a known economic fact) . I dont care if this is the nano or the 3GS continued after June.
And, when their supply increases as more factories go online in china with this $4B development, they can keep margins high even on lower end machines. Two of the major component costs - screens and processor - will be cheaper to Apple than other competitors ( except Samsung for obvious reasons with processor).
Assuming that the displays are $N cheaper for Apple even in the older devices, then margins stay the same with a $N reduction in price, but margins can - frankly - drop. Make it $N+ cheaper.
Smart phones are becoming commodities -it makes sense for Apple to protect its cheaper end.