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Slowing iPhone growth may be function of smartphone industry, not restricted to Apple

post #1 of 30
Thread Starter 
As year over year growth of Apple's iPhone sales slow, there is evidence that the once-booming smartphone industry is cooling off as a whole.

Taking a closer look at Verizon's latest earnings report, analyst Maynard Um with Wells Fargo Securities said in a note to investors on Friday that he believes slowing smartphone sales are not Apple-specific. He noted that iPhone activations at Verizon were up 25 percent year over year, while other smartphones grew just 3 percent.

Unboxed


In all, smartphone activations were up 14 percent year over year in the March quarter at Verizon, which is the largest wireless carrier in the U.S. In comparison, Verizon saw 27 percent year over year growth in the previous holiday quarter.

"With Nokia and BlackBerry smartphone units also lower than most anticipated, and combined with Verizon's upgrade data point, we believe the industry may have seen a slowing in (the first quarter of 2013)," Um wrote.

However, any industry slowdown isn't expected by Um to last. He sees smartphone sales accelerating in the second half of calendar 2013, driven by major new product launches, as well as a large number of iPhone 4S buyers' service contracts expiring, thus making them eligible for upgrades.

Verizon reported on Thursday that it activated 4 million iPhones in the March quarter, with Apple's smartphone accounting for more than half of the 7.2 million smartphones activated by the carrier in the three-month span. The iPhone activations reported by Verizon were about in line with expectations, though a 50-50 split between iPhone 5 sales and legacy iPhone 4S and iPhone 4 units was viewed as a disappointment.

Historically, Verizon has on average accounted for 11.1 percent of Apple's quarterly iPhone sales. Applying that same number, Um admitted that there is a chance that iPhone sales for the quarter could disappoint investors when the company reports its earnings next Tuesday.

Um's forecast calls for Apple to have sold 38.7 million iPhones in the March quarter, but if Verizon accounted for 11.1 percent of total sales, it implies Apple could have sold 36 million iPhones.

Wells Fargo categorizes AAPL stock with an "outperform" rating. It is currently advising investors with a share "valuation range" of between $600 and $630.
post #2 of 30
Wait - what? Do you mean to say that a trend doesn't continue indefinitely based on a short time period independently of the hundreds of factors in the real world that affect that trend?
post #3 of 30
Quote:
Originally Posted by lilgto64 View Post

Wait - what? Do you mean to say that a trend doesn't continue indefinitely based on a short time period independently of the hundreds of factors in the real world that affect that trend?

How dare you bring reality into this. Smartphone growth is going to be exponential forever! Same with how AAPL stock was going to grow forever with no bounds! Market corrections never happen! Tim Cook is clearly the worst CEO of all time for not being able to maintain perpetual exponential growth!

post #4 of 30
Cooling off in the US or cooling off globally? I also see data from the US here.
post #5 of 30
Quote:
Originally Posted by lilgto64 View Post

Wait - what? Do you mean to say that a trend doesn't continue indefinitely based on a short time period independently of the hundreds of factors in the real world that affect that trend?

 

 

Well said.

post #6 of 30
Captain obvious says...

We keep hearing about how iPhone growth is slowing... and we keep hearing that Apple is *GAINING* market share. Meanwhile... it's commonly thoughts that Samsung is destroying Apple. 1 1 = 4.

Back in the real world... 1 1 = 2. 2 = the headline of this article.
post #7 of 30
This article is true as Apple is already earning too fast and too big . I believe Samsung will be the next .
post #8 of 30
I am thinking the market is close to saturation in many markets (US, UK and EU) and growth with now come from pulling competitors and a few straggling late adopters. In this fight, I think Apple is better positioned due to higher customer loyalty. In short, Android, WP and BB will have (lets say) 15% (customer defect rate) of a 20% market share to pull new customers from Apple with. Apple, on the other hand, will have a 20% (customer defect rate) of a 80% market share to pull from Android/WP/BB. This will give Android, WP and BB about 3.0% potential market share gains from Apple. Apple will get, however, 16% market share gains from Android/WP/BB (but mostly Android) for a total upside of about 13% market share gain. Given this will take about 4 years to play put, the iPhone should see decent 20-30% YoY growth for the next 3-4 years.

The developing markets like India and China are big unknowns but I don't see Apple getting huge share in those two countries.
post #9 of 30
The impact of cheap and cheerful Chinese Android handsets on HTC and Samsung is becoming interesting.

Take a look at the popular Chinese website Taobao to see the amount of quality Galaxy Note II clones that have become available, now with fast quadcore processors and high ppi IPS screens.

HTC and Samsung have very little to differentiate from these increasingly competitive Android handsets that are appearing for a third of the price. If they can be marketed correctly, they have to hurt Samsung and HTC.
post #10 of 30
As a percentage - iPhone growth in the US is slowing. In absolute terms, iPhone growth in the US is rising - during 2012 - 16.7 million new users, during 2011 - 13.1 million new users. Android is different. During 2012 - 21 million new user, during 2011 - 30 million new users. Therefore, in the US - Android is slowing due to market saturation or user dissatisfaction, iPhone is still growing.
post #11 of 30
I used to replace my iPhone annually upon each new release but the 4S was the first phone I decided to keep for more than a year because it is still performing fast and runs all the latest apps. I will probably get the 5S when it is released but the point I'm trying to make here is people no longer need to upgrade their phones as soon as the next big thing comes out. Smartphones have matured in quality and performance to the point where they have increased longevity. Does this explain the slowed growth of smartphones?
post #12 of 30
Quote:
Originally Posted by AppleInsider View Post

 a 50-50 split between iPhone 5 sales and legacy iPhone 4S and iPhone 4 units

 

Hmm, so less expensive units are selling in numbers equal to the current model. In the United States yet, not India or China. That would seem to contradict those who argue that there is no need for Apple to offer a less expensive handset (whether that be in the form of a new, less expensive device or just a discounted older model).

post #13 of 30
Quote:
Originally Posted by v5v View Post

 

Hmm, so less expensive units are selling in numbers equal to the current model. In the United States yet, not India or China. That would seem to contradict those who argue that there is no need for Apple to offer a less expensive handset (whether that be in the form of a new, less expensive device or just a discounted older model).

Yes, two models combined are selling about equal to a single, more expensive model. How does the fact that the 5 is selling just as much as two less expensive models combined equal to validation of the idea that Apple needs to offer some crappy plastic phone to compete?  You might have a point if the 5 was being outsold by either of the two previous models on their own, but it's not.

post #14 of 30

These pieces are starting to sound more and more like excuses than actual news articles.

post #15 of 30
Originally Posted by Cash907 View Post
These pieces are starting to sound more and more like excuses than actual news articles.

 

That's what happens when you buy into the garbage printed elsewhere.

Originally Posted by Slurpy

There's just a TINY chance that Apple will also be able to figure out payments. Oh wait, they did already… …and you’re already f*ed.

 

Reply

Originally Posted by Slurpy

There's just a TINY chance that Apple will also be able to figure out payments. Oh wait, they did already… …and you’re already f*ed.

 

Reply
post #16 of 30
Or iPhones last so long and software continues to be upgraded long past end-of-sale that the market is saturated with resold and hand-me-downs. I would hesitate to tie Apple's long term trend with other players in the smartphone market.

I know my experiences are anecdotal.
post #17 of 30
Quote:
Originally Posted by gwmac View Post

Why the 50-50 split between the 5 and 4 & 4S?

The most popular Android handset screen sizes are 4" and smaller.
post #18 of 30

The same thing may be happening with phones that happened with computers (they are little computers after all). Namely, people's current phone is fast enough for what they need so there's less and less incentive to upgrade every year. The iPad doesn't suffer from this problem yet, every iPad upgrade I've done I've noticed a dramatic improvement.

 

New software that is irresistibly awesome and can only run on the latest device would cause a lot of upgrades. But the PC also reached the point where everyone was looking for the new "killer app" (the original being the spreadsheet) and all we get is more and more demanding games each year. But that's ok. I have upgraded my video card every few years just to be able to play the latest games at high fidelity.

 

Maybe games will drive phone upgrades going forward too. And that's good for Apple because the App Store has lots of 'em.

post #19 of 30
Quote:
Originally Posted by Applelunatic View Post

[...] How does the fact that the 5 is selling just as much as two less expensive models combined equal to validation of the idea

 

We don't have breakdown figures for 4 vs. 4S -- could be 90%/10% or 50/50 for all we know -- but it doesn't really matter. The point is that cheaper units are selling just as well as the expensive unit. If that's not a solid indicator of demand for a less expensive Apple phone, I don't know what is.

 

 

Quote:
Originally Posted by Applelunatic View Post

[...] the idea that Apple needs to offer some crappy plastic phone to compete?

 

 

Why do you automatically assume "crappy?" Was the 3G crappy? How about the white MacBook? A plastic back is hardly the ultimate arbiter of a device's durability, utility or performance.

 

Actually, why do you assume plastic? Apart from not knowing whether or not Apple even plans to make a new, cheaper phone at all, we have no idea what it will be made of.

 

My point was (and is) that the sales figures stated in the article clearly justify the existence of an inexpensive iPhone, whether it be a discounted old model or a new, lower cost model. Personally I think people would be more inclined to buy a new, plastic "iPhone Lite" than last year's model, especially if it offered some distinctive characteristic like a choice of color. If it happens we'll see if I'm right or wrong. If it doesn't, it's a moot point.


Edited by v5v - 4/20/13 at 1:46pm
post #20 of 30
Quote:
Originally Posted by v5v View Post

We don't have breakdown figures for 4 vs. 4S -- could be 90%/10% or 50/50 for all we know -- but it doesn't really matter. The point is that cheaper units are selling just as well as the expensive unit. If that's not a solid indicator of demand for a less expensive Apple phone, I don't know what is.

There's an estimated breakdown here:

http://appleinsider.com/articles/13/02/20/apples-iphone-5-and-iphone-4s-are-worlds-two-most-popular-smartphone-models

Total iPhones noted by Apple: 47.8m
iPhone 5: 27.4m
iPhone 4S: 17.4m
iPhone 4: 3m

Sometimes figures like this are based on ad networks. The 50-50 split in the article is just one carrier in one country so not an indication of a worldwide 50-50 split. Even if it did, the iPhone 5 at 50% is still more than either of the cheaper models, so people are primarily going for the more expensive model.

The analysts are spreading misinformation (lies) about the iPhone 5 because they think they can pressure Apple into building a cheaper iPhone. Because of the slowed growth, they've been telling investors that there are growth opportunities if Apple just makes a cheaper phone, more colors, a TV and a watch. So to try and make this a reality, they put out lies about how big the potential markets are for a TV and watch, claiming that Apple is leaving an $80b opportunity on the table and they try and twist stats to suggest that cheap phones outsell the expensive ones. This is so Apple builds a cheaper phone to target 'emerging markets'.

If Apple does any of those things, these analysts can claim that they were right about all their predictions. What doesn't seem to sink in is that they need to listen to Apple instead of trying to tell them what's best and advise investors on what Apple will do, not what they think they should do. Apple has all of the sales data and they're not stupid. They know what sells and what doesn't. If they see a growth opportunity, they'll take it wherever it presents itself but as they've stated quite explicitly, it will not be for volume just for the sake of it:

http://thenextweb.com/apple/2013/01/10/apples-schiller-says-that-despite-the-popularity-of-cheap-smartphones-they-will-not-be-the-future-of-apples-products/

"Apple SVP of Worldwide marketing Phil Schiller gave an interesting interview to Chinese newspaper Shanghai Evening News. In the interview, he directly addresses the rumors surrounding a potential cheaper iPhone, saying:

"Despite the popularity of cheap smartphones, this will never be the future of Apple’s products. In fact, although Apple’s market share of smartphones is just about 20%, we own the 75% of the profit"

Apple contacted them to edit the content and the conclusion was that "Schiller was not specifically saying that Apple wouldn’t produce a less expensive iPhone, but would stay away from making one that is ‘cheap’ in either build quality or materials."

It's obvious they can do this quite easily as you can see from the Apple Peel, which turns an iPod into a phone:

http://www.peel520.net

The iPod Touch 4G is $199 and the shell is about $100. The iPod Touch is a decent quality device. According to AT&T, the iPhone 4 is $450 so a $299 iPod Phone would be a fair bit cheaper. Most likely it would be based on the $299 5G iPod but they can drop to 16GB storage and the cost of the phone parts wouldn't be $100 so it could be $350 or something.

They could have:
iPod Touch Phone - $350
iPhone 4 - $450
iPhone 4S - $550
iPhone 5 - $650

The problem is, the 5G iPod is faster than the iPhone 4 so it drives people down instead of up.
post #21 of 30
Quote:
Originally Posted by Marvin View Post

The analysts are spreading misinformation (lies) about the iPhone 5 because they think they can pressure Apple into building a cheaper iPhone. 

 

Let's say they are deliberately doing just that.  What's wrong with it?  Perhaps they'd like to see the whole world using iPhones. 

 

Quote:
....and they try and twist stats to suggest that cheap phones outsell the expensive ones. This is so Apple builds a cheaper phone to target 'emerging markets'.

 

Wait. You don't think that cheaper phones outsell the expensive ones, in emerging markets?

 

Quote:
If Apple does any of those things, these analysts can claim that they were right about all their predictions. What doesn't seem to sink in is that they need to listen to Apple instead of trying to tell them what's best and advise investors on what Apple will do, not what they think they should do. Apple has all of the sales data and they're not stupid. They know what sells and what doesn't. If they see a growth opportunity, they'll take it wherever it presents itself but as they've stated quite explicitly, it will not be for volume just for the sake of it:

 

I think you're right, saying that Apple has the best info and will do what makes sense to them.

 

As for analysts "listening to Apple", that only works if Apple communicates their plans, but they don't do that.  Analysts are about predicting the future, and they can only work with available info.

post #22 of 30
Quote:
Originally Posted by KDarling View Post

Let's say they are deliberately doing just that.  What's wrong with it?  Perhaps they'd like to see the whole world using iPhones.

Sure, analysts are just here to make the world a better place. You have to remember their motive. They are trying to predict things for their investors and what better way to predict things accurately than to try and make whatever they say, no matter how far-fetched, come about. Look at how long they've been at this:

http://www.ft.com/cms/s/2/c9169840-5157-11de-84c3-00144feabdc0.html

That's about 4 years ago, I assume it's the same Kathryn/Katy Huberty using the same bogus consumer surveys:

"Citing a firm survey of consumers, she said that a $50 price cut could increase demand by 50 per cent and a $100 cut by 100 per cent."

These people don't seem to understand that the product price isn't profit. If an iPhone 4 is $450, you don't just cut $100 and doubling the sales means profit growth. If their net margin on the phone is 25%, that means they make $112 profit on the phone. They can't just cut $100 out and then double it to make $24 and end up in a better place. They have to rethink the entire device components. In effect, they have to build a crappy phone, which Apple employees have said repeatedly they won't do.
Quote:
Originally Posted by KDarling View Post

Wait. You don't think that cheaper phones outsell the expensive ones, in emerging markets?

Yes, dirt cheap ones. This is the problem in India:

http://blogs.wsj.com/indiarealtime/2012/09/14/why-apple-has-tiny-market-share-in-india/
http://online.wsj.com/article/SB10001424127887323699704578328043135138604.html

"Samsung has benefited from high brand recognition in India, thanks to the company's household appliances, such as television sets and air conditioners. The company invested heavily in India to market its Galaxy smartphones, which start at $111. Samsung also has much greater retail reach than Apple, selling its devices through 100,000 franchisee-owned and mom-and-pop stores.

Such factors "have all worked in favor of Samsung creating a niche in India," says Katyayan Gupta, an analyst with Forrester Research Inc.

Despite Apple's recent advances, it will have to broaden its portfolio of phones in India, introduce a sub-$250 iPhone and further increase marketing "to really turn a corner this year" and take market share from its South Korean rival, says Mr. Shah, of Strategy Analytics."

Apple sells cheaper devices already in the form of the old models and it's not likely that they cost significantly less to make now but that they are partly taking a lower margin on them. These people are asking for a sub-$250 phone because in emerging markets they pay for phones outright and don't have much money. If Apple was to make a $250 iPhone with 40% gross margins, they have to build an iPhone for $150 tops - a Nexus 4, which I assume has little to no profit is $299. The other expenses involved in getting the devices into the hand of consumers in emerging markets is probably higher than elsewhere so the net margins could easily shrink.

If they had the potential to sell loads, it's worth looking into more but they don't:

http://www.dazeinfo.com/2013/03/05/smartphones-will-outsell-feature-phones/

Look how small the volumes are in the emerging markets. The projections make it look good but projections always do. Apple owns 20% of the market with 75% of the profit. There is no urgency to chase after low profit, high volume.

If they choose to have a stronger presence in the low-end markets, it won't be with a <$250 phone. Like I say, maybe there's a way for them to build a $350 phone but it's hardly going to come close to Samsung's phones starting at $111.
Quote:
Originally Posted by KDarling View Post

As for analysts "listening to Apple", that only works if Apple communicates their plans, but they don't do that.  Analysts are about predicting the future, and they can only work with available info.

I mean listening to what Apple has said in the past and observing their financial reports and market tactics. What analysts do is make up predictions, assume they know better and then start spreading misinformation to try and make the market fall in line with what they say. They don't care if Apple makes more profit doing what they say, their motive is to look right in the eyes of their investors. They maintain their credibility on the sole basis that when you label something as a prediction / guidance / expectation, it doesn't have to be backed by anything. Even if they say the same rubbish for 4 years and keep saying 'a cheap iPhone is coming this year', they keep their jobs representing large companies.
post #23 of 30
Quote:
Originally Posted by Marvin View Post

These people don't seem to understand that the product price isn't profit. If an iPhone 4 is $450, you don't just cut $100 and doubling the sales means profit growth. If their net margin on the phone is 25%, that means they make $112 profit on the phone. They can't just cut $100 out and then double it to make $24 and end up in a better place. They have to rethink the entire device components. In effect, they have to build a crappy phone, which Apple employees have said repeatedly they won't do.

 

Agreed, Apple's not going to build a crappy device.  However, they've already demonstrated with the iPad mini that they're willing to take a cash margin hit in return for both revenue by quantity, and to throw their hat into an obviously popular market segment.   (So popular, that iPad mini sales have reportedly heavily cannibalized regular iPad sales, lowering Apple's overall tablet ASP and profit margin.)

 

I sometimes think that Cook has been slowly preparing everyone for lower profit margin expectations, since he intends to go after even more lower profit markets.  Once people stop expecting ridiculously high margins, his options expand greatly.  

 

Quote:
Yes, dirt cheap ones. This is the problem in India:
(snip)
If they had the potential to sell loads, it's worth looking into more but they don't:

 

Good points.  Yes, India (and China) could very well end up being market wastelands for Apple (and Samsung), instead of opportunities.   Both countries now have homegrown phone manufacturers that sell phones for unbeatable low prices.  And China's government seems to be pushing people to buy native.

 

Quote:

I mean (that analysts should be) listening to what Apple has said in the past and observing their financial reports and market tactics.

 

 Fair enough.  At the same time, I think that the iPad mini.. and the sales of two older iPhone models... are clear indicators that Apple is very interested in the lower (but not lowest) price markets.

post #24 of 30
Quote:
Originally Posted by Marvin View Post

[...] the iPhone 5 at 50% is still more than either of the cheaper models, so people are primarily going for the more expensive model.
 

 

I understand that, but don't see how it contradicts my point. If the iPod Touch sells 20% more units than the Nano, does that mean the Nano is not a justifiable product? Why does the cheaper phone have to match or outsell the top model to be "worth doing?" What's wrong with 27 million iPhone 5 and 15 million iPhone Lites?

 

Further, how many of those iPhone 4/4S sales are buyers that Apple would otherwise not have had at all? In other words, if their only choice were the 5, would they have bought a Samsung or something instead? If so, and there's profit to be made on the cheaper model, it's a good idea. Some might argue that it's a good idea even if there isn't much money in the sale of the phone itself, because buying into the Apple ecosystem promotes sales of other products and services.

 

 


Quote:
Originally Posted by Marvin View Post

The analysts are spreading misinformation (lies) about the iPhone 5 because they think they can pressure Apple into building a cheaper iPhone. Because of the slowed growth, they've been telling investors that there are growth opportunities if Apple just makes a cheaper phone, more colors, a TV and a watch. So to try and make this a reality, they put out lies about how big the potential markets are for a TV and watch, claiming that Apple is leaving an $80b opportunity on the table and they try and twist stats to suggest that cheap phones outsell the expensive ones. This is so Apple builds a cheaper phone to target 'emerging markets'.

 

I have no doubt that you're right, but my point is that they don't need to show cheaper phones "outselling" expensive ones for the cheaper model to represent a good opportunity. While "selling only a few" may not make good business sense, "not as many as the expensive one but still really a lot" just might.

post #25 of 30
Quote:
Originally Posted by v5v View Post

If the iPod Touch sells 20% more units than the Nano, does that mean the Nano is not a justifiable product?

Say that you sell 20 million $600 phones and 10 million $300 phones. If they have the same 25% margins, you make $3b from the expensive models and $750m from the cheap ones. If say 1/4 of the cheap ones cannibalise the more expensive model, there was little point in expending the resources making the cheaper one because you lose $375m in the cannibalisation to gain $750m so your net profit increase by making the cheap one is $375m (12.5%) but you have to spend 50% more resources building and shipping the extra volume to customers.

Business decisions are typically about return on investment. If the investment is too high for the return, they'd be better not doing it. Some people invest to gain marketshare, Apple does it for profit. They've got a killer combination with the iPhone because they have both. They are only second to Samsung in volume but take 75% of the profits. Making a cheaper phone could push them ahead of Samsung in volume but there's not much more profit to be had. Like I say, it could be like having to ship 50% more phones (a lot of work) for just 12.5% more profit and it likely wouldn't even be that much profit gain.
Quote:
Originally Posted by v5v View Post

Further, how many of those iPhone 4/4S sales are buyers that Apple would otherwise not have had at all? In other words, if their only choice were the 5, would they have bought a Samsung or something instead?

I agree they clearly need models below the iPhone 5 but they have to be careful with their choices in order to maximise the profit. The setup they have now seems to be working pretty well so far because it drives people to the more expensive models.
Quote:
Originally Posted by igriv 
the function of analysts is to observe, not to "pressure", and in order to facilitate their observation they have to have a good relationship with the management of the companies they are observing -- this is the usual reason why analyst opinions are too optimistic. So, what reason do you have to believe that Apple has a different relationship with the analyst than every single other company?

Apple is a secretive company and future roadmaps aren't divulged readily. This leaves analysts in the dark so they make up stories about supplier reports of new products. In some cases, it's to sway shareholders one way or another and the shareholders put pressure on Apple. This leads them on occasions to speak about the rumours, which they've done more than they used to.

Here's Katy Huberty again:

http://appleinsider.com/articles/13/04/11/analyst-says-apple-may-launch-new-internet-service-killer-ios-app-after-meeting-with-management

Does anyone honestly think that the Apple management gave her any inside information about what they were doing in the near future so she could immediately blab it all over the internet before the launch? No, yet she goes around making out like she's got some inside scoop on what's coming and presents it in a way to make it look like it's factual. The fact she goes around doing this suggests she doesn't have a good relationship with Apple because there's no way they can trust her to keep quiet.

Analysts and the press are constantly trying to pull information out of Apple so they can provide more accurate predictions and news to their customers.
post #26 of 30
Quote:
Originally Posted by Marvin View Post


Say that you sell 20 million $600 phones and 10 million $300 phones. If they have the same 25% margins, you make $3b from the expensive models and $750m from the cheap ones.
If say 1/4 of the cheap ones cannibalise the more expensive model, there was little point in expending the resources making the cheaper one because you lose $375m in the cannibalisation to gain $750m so your net profit increase by making the cheap one is $375m (12.5%) but you have to spend 50% more resources building and shipping the extra volume to customers.

 

Yet that is what Apple did with the iPad mini:

 

iPad 3 ....... $500 retail - $306 BOM = $194 gross profit (39%)
iPad mini.... $330 retail - $188 BOM = $142 gross profit (43%)
 
Apple kept roughly the same gross profit margin percentage, but with lower cash gross per device.
 
The iPad mini reportedly has heavily cannibalized the regular iPad sales, so they've "lost" millions of dollars selling the less expensive model.
 
How does this fit in with the idea that there is "little point in expending the resources making the cheaper one"?
 
Obviously Apple felt that somewhere they were losing sales or mindshare to smaller tablets.  The same could go for phones.
 
Thoughts?
post #27 of 30
Quote:
Originally Posted by KDarling View Post

Yet that is what Apple did with the iPad mini:

iPad 3 ....... $500 retail - $306 BOM = $194 gross profit (39%)
iPad mini.... $330 retail - $188 BOM = $142 gross profit (43%)

Apple kept roughly the same gross profit margin percentage, but with lower cash gross per device.
 
The iPad mini reportedly has heavily cannibalized the regular iPad sales, s
o they've "lost" millions of dollars selling the less expensive model.

Yes, that's right. You can see that their shipment volumes in Q1 2013 were all up - 30% more iPhones and 50% more iPads but their net profit is the same. They've done much more work for the same money. The consideration is whether or not people would migrate to cheaper competing devices. I think that would have been the case with the iPad because some people like to use these for reading and the Retina iPad is quite heavy.
 
Quote:
Originally Posted by KDarling View Post

Obviously Apple felt that somewhere they were losing sales or mindshare to smaller tablets.  The same could go for phones.

The difference with the phones is that we're not talking about a $170 price difference and a significantly different device. There is a clear upsell to a Retina iPad from a mini because the mini doesn't have a Retina display and it's also smaller, which some people might not like. What we're talking about with the iPhone is that the $450-650 price points are too high so they'd design a brand new model that is less expensive but how do they keep the upsell to the $650 phone?

I mocked up what a cheaper plastic phone would look like next to the current iPhone:



The one on the left can't be cheaper than an iPod Nano at $299 and there's no point in making it $450 like the iPhone 4 or that's worse. So it has to be around $350. If you saw those phones side by side, would you pay $300 extra for the one on the right? The only thing that distinguishes it would be that the one on the right has a faster CPU, possibly better camera.

The iPad mini is $170 cheaper that the Retina one but for that, you get a smaller device, which you may not like, lower resolution, slower performance.
The iPhone Cheap would be $300 cheaper but the only difference is that it's a little slower and has a plastic back.

By selling the old models of the phone, you have that perception that you are getting the old models and not as good as the new one. With a cheap iPhone, people would say 'it's exactly the same, they just put a different back on it and you save $300' - they're not going to care about A5 vs A7 or whatever.

It would go some way to preventing migration to other cheap phones but at $350, it's still far above $100 prepaid smartphones. What they have to weigh up is if it will cause more harm to their profitability than it will be a benefit for sales volume. I think what they've been doing so far is a pretty good strategy. I think if they designed a cheap iPhone and sold it along with an expensive one, they'd actually drive their average selling price down and affect profitability.

I acknowledge the iPad mini has done this but I think that was the right thing to do and I don't think the price difference of $170 is nearly as significant as it would have to be here.
post #28 of 30
Originally Posted by Marvin View Post
I mocked up what a cheaper plastic phone would look like next to the current iPhone:

 

I'm convinced. A new plastic iPhone wouldn't LOOK like crap. Might feel like crap, might operate like it, but sure won't look it. Great mockup.

Originally Posted by Slurpy

There's just a TINY chance that Apple will also be able to figure out payments. Oh wait, they did already… …and you’re already f*ed.

 

Reply

Originally Posted by Slurpy

There's just a TINY chance that Apple will also be able to figure out payments. Oh wait, they did already… …and you’re already f*ed.

 

Reply
post #29 of 30
Quote:
Originally Posted by Tallest Skil View Post

I'm convinced. A new plastic iPhone wouldn't LOOK like crap. Might feel like crap, might operate like it, but sure won't look it. Great mockup.

It is a great mockup. Being as how I'm one of the tactile advocates around here (one who goes on about the feel of the iPad and the mini's satiny aluminum, etc.), I have to say that Apple's plastic is going to feel good too.

I owned one of those white laptops. It's ok, really. It's warm and soft. With the right edge sculpting, which is clearly Jony Ive's specialty, it will be very friendly to the touch. Or so I predict.

This tactile stuff is just as important as the visual, but they do work together. The tactile harshness of the iPhone 4/4S bodies is offset, more than justfied, by the slickness of the stainless steel and glass architecture, so the end result is that you feel you're holding a work of modern art. Your touch is reassured.

Samsung's plastic may be the same polycarbonite material, but they blow it when it comes to the visual, and so the tactile input is short-circuited by the eyes. That textile-under-clear look they have just looks cheap and greasy, like those fitted clear vinyl covers old ladies used to put on their nice upholstery to keep it from getting dirty. So their plastic ends up feeling greasy.

So I think that if Apple makes a good-looking plastic back, it will also register as delightful to the touch.
post #30 of 30
Quote:
Originally Posted by Flaneur View Post

So I think that if Apple makes a good-looking plastic back, it will also register as delightful to the touch.

 

Yet the majority of owners will put a case over it, and never feel it again.

 

Wish someone could make a nice exterior that looked good _and_ was resistant to drops and water, and had a nice practical grip to it.

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