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iPhone 5s demand healthy, margins for 5s and 5c higher than iPhone 5, analyst says

post #1 of 37
Thread Starter 
Apple's new flagship iPhone 5s and mid-range iPhone 5c contribute more value to Cupertino's profit margins than their predecessor, the iPhone 5, according to one Wall Street analyst.

iPhone 5s and 5c margin
iPhone 5s and 5c margin relative to iPhone 5 | Source: Deutsche Bank and IHS


A report provided to AppleInsider Monday by Chris Whitmore of Deutsche Bank suggests that Apple's new iPhones may yield higher margins than the previous generation, with the 16-gigabyte iPhone 5c providing a 50-basis-point, or 0.5-percent, bump and the 16-gigabyte iPhone 5s driving a full 1 percent increase as compared to the same capacity iPhone 5. As a result, Whitmore said he expects the handsets to be "very beneficial" to Apple's bottom line, despite the currently limited supply of the iPhone 5s.

Whitmore has based the margin profiles of the devices off of third-party teardown data from IHS, which pegs the iPhone 5s bill of materials, or BOM, at $199 versus $207 for the iPhone 5, even with the addition of the new Touch ID fingerprint sensor and redesigned, sapphire crystal home button. Whitmore noted that "the incremental cost for the fingerprint sensor is entirely offset by cost improvements across most other categories," notably a $3 drop in the cost of the Retina display and a $5 decrease for the Sony camera module.

The iPhone 5c comes with a significantly improved $174 BOM, according to the analysis, a 16 percent drop from the iPhone 5. The decrease is attributed largely to the iPhone 5c's plastic rear housing, which contributes $13 to the difference. Lower prices for the camera and processor, which are unchanged from the iPhone 5, bring a further $7 and $4.50 reduction, respectively.

There seems to be some disagreement from competing analysts about exactly how much it costs Apple to make the new iPhones. A similar report from UBS, obtained by The Wall Street Journal, put the BOMs at $213 and $156, respectively, for the iPhone 5s and 5c. UBS believes profit margins for the two devices to be between 45 to 55 percent, a difference partly attributable to higher manufacturing costs, which include freight in UBS's calculation.

iPhone 5s stock out worldwide
iPhone 5s out-of-stock percentage in the U.S., U.K., and Australia | Source: Deutsche Bank


A point which seems universally accepted, however, is that demand for the iPhone 5s remains strong, despite sharp constraints on supply. Whitmore checked 20 Apple retail stores in the United States, the United Kingdom, and Australia, and responses indicate that iPhone 5s units are selling out nearly as fast as they arrive. Stores are advising customers to call ahead to check stock, and to shop early in the morning in order to have the best chance to find their device in stock.

According to the report, one customer service representative advised Whitmore that "demand's been so high [for the iPhone 5s] that we run out of stock in about 30 minutes." Online channel checks returned similar results for the iPhone 5s, with lead times from Apple and its major U.S. carrier partners at approximately 38, 21, and 24 days for the gold, space gray and silver models, respectively.

iPhone 5c units, conversely, continue to show immediate availability in all channels, both brick-and-mortar and online, with all colors and storage capacities well represented. Whitmore noted that some Apple retail associates reported customers upgrading from iPhone 4 or 4s units were often willing to upgrade to the iPhone 5c rather than wait for availability of the iPhone 5s, saying "the 5C is quite good and a lot of customers who can't get the 5s haven't minded upgrading to a 5c."

Whitmore believes that the lean inventory of the iPhone 5s, which was released alongside the iPhone 5c to record-breaking opening weekend sales just 10 days ago, combined with the rumored October iPad refresh that is expected to bring a redesigned iPad 5, positions Apple "to deliver a strong holiday quarter."
post #2 of 37
I am sure, this will destroy Apple once and forever!




/s
post #3 of 37
So, Apple has.both higher sales AND higher margins on their new phones compared to the 5. But will that satisfy the bloodsucking analysts/investors that were assuming the opposite? Of course it won't.
post #4 of 37

Apple should invite all the analysts and have a tea break.  

And present a small paper, at the end of that happy-tea-party, that says... 
 

Quote:
"You morons..."

Edited by Chandra69 - 9/30/13 at 7:32am
post #5 of 37
I'm not sure how you can get margins from estimated BOM. 5C might be cheaper to manufacture than the 5 was but there are marketing costs around the 5C that a cheaper 5 would not have had. The shameful thing is media outlets equating these BOM estimates as the total cost of the phone, implying huge markups by Apple. Even CNBC did this without explaining that these estimates don't include any R&D, administrative costs , free software, etc. Of course CNBC should know better, but headlines like that make for good click bait.
post #6 of 37
Quote:
Originally Posted by AppleInsider View Post

There seems to be some disagreement from competing analysts about exactly how much it costs Apple to make the new iPhones.

That one takes the cake!

Anyhoo, supposedly the jump to the 32GB model only costs Apple $20. And $29 for the 64GB chips. Though I hear the smallest storage is mostly sold, and that is indeed what I see around me, possibly because some telco's only sell the 16GB version
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post #7 of 37
Quote:
Originally Posted by Rogifan View Post

I'm not sure how you can get margins from estimated BOM. 5C might be cheaper to manufacture than the 5 was but there are marketing costs around the 5C that a cheaper 5 would not have had. The shameful thing is media outlets equating these BOM estimates as the total cost of the phone, implying huge markups by Apple. Even CNBC did this without explaining that these estimates don't include any R&D, administrative costs , free software, etc. Of course CNBC should know better, but headlines like that make for good click bait.

 

The chart clearly says "contribution margin".  Contribution Margin is simply Price Minus Variable Cost.  They've expressed this as a percentage, so it's (Price-Variable Cost)/Price.   

post #8 of 37
Ordered 8 days ago from Apple online, just shipped from Shenzhen. Looking forward to it, just a shame it's for the better half...
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post #9 of 37
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Originally Posted by sennen View Post

Ordered 8 days ago from Apple online, just shipped from Shenzhen. Looking forward to it, just a shame it's for the better half...

You do that too? I always have the 'better half's cast off' … so this Christmas i'll have an iPhone 5 at last 1smile.gif
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post #10 of 37
Quote:
Originally Posted by JamesMac View Post

The chart clearly says "contribution margin".  Contribution Margin is simply Price Minus Variable Cost.  They've expressed this as a percentage, so it's (Price-Variable Cost)/Price.   

Exactly. 'Contribution Margin' may be the easiest number to calculate - and is even easier than gross margin. There's no need to consider R&D, software, admin costs, etc as Rogifan suggests.
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post #11 of 37
I don't find the fact that the easier to manufacture and stock 5c is in high demand all that shocking. You figure, last year there was a healthy demand for the 4s even along side the 5, and IMHO, there is a greater user noticeable difference between the 4s and 5 than there is between 5c and 5s (larger screen and LTE). And since most average consumers up for renewal have had their iPhone for 2 years, they are coming from the 4 and 4s and the 5c will be enough for them
post #12 of 37
Did they factor in the cost of Authentec? The cost of R&D (as said) all the iCloud servers and related services?

Interesting is the fact that the iPhone 5S and 5C generate more revenue for Apple, which is good. But never mix revenue and profit...
post #13 of 37

Notice the title of this article carefully.   I'm starting to think the 5C has not sold well at all.  

post #14 of 37
Quote:
Originally Posted by JamesMac View Post
 

I'm starting to think the 5C has not sold well at all.  

 

Compared to what?

post #15 of 37
Quote:
Originally Posted by JamesMac View Post

Notice the title of this article carefully.   I'm starting to think the 5C has not sold well at all.  
How in the world can we know? People are just assuming because its in stock that means its not selling. But maybe the 5C wasn't intended to be a phone that sells out right away. Maybe it's intended to be a phone that has steady sales throughout the year. I don't remember all this concern about how well the iPhone 4S was selling after the iPhone 5 was announced.
post #16 of 37
Quote:
Originally Posted by digitalclips View Post


You do that too? I always have the 'better half's cast off' … so this Christmas i'll have an iPhone 5 at last 1smile.gif

 

Good attitude! I love it! :)

post #17 of 37
Quote:
Originally Posted by jragosta View Post

Exactly. 'Contribution Margin' may be the easiest number to calculate - and is even easier than gross margin. There's no need to consider R&D, software, admin costs, etc as Rogifan suggests.
I wasn't referring to this chart. I was referring to the general reporting every time these BOM estimates come out.
post #18 of 37
Quote:
Originally Posted by Rogifan View Post


How in the world can we know? People are just assuming because its in stock that means its not selling. But maybe the 5C wasn't intended to be a phone that sells out right away. Maybe it's intended to be a phone that has steady sales throughout the year. I don't remember all this concern about how well the iPhone 4S was selling after the iPhone 5 was announced.

 

The 4s wasn't marketed as a new phone.

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post #19 of 37
Quote:
Originally Posted by Rogifan View Post


How in the world can we know? People are just assuming because its in stock that means its not selling. But maybe the 5C wasn't intended to be a phone that sells out right away. Maybe it's intended to be a phone that has steady sales throughout the year. I don't remember all this concern about how well the iPhone 4S was selling after the iPhone 5 was announced.

 

I don't know how many times this has to be explained......one more time with feeling....

 

The market is looking at sales during the launch weekend of 9 million units, a huge increase from prior launches.  The big question is, how many were actually sold to consumers.  The range seems to be 6.5 million to 9 million units.   You've got some analysts swearing the number is 6.5 million and others who seem to think it's closer to 9.  

 

Just to be crystal clear, if it really is 6.5 million, then adding in the 4S sales last time, Apple isn't growing and the stock will be in bad shape; conversely, if it really is 9 million, things look good.    If you look at where the stock is trading, it didn't get much of a bounce, so my gut tells me that the market is questioning the number, but I suspect we'll be waiting until 3Q results until there is clarity.

post #20 of 37
Quote:
Originally Posted by JamesMac View Post

Notice the title of this article carefully.   I'm starting to think the 5C has not sold well at all.  

Based on what?

The lowest estimates for the 5C are around 2 M units. Keeping in mind that the 5C is essentially last year's phone (with a few minor improvements and a new case). How many previous generation phones have ever sold 2 M in one weekend?

Heck, other than the iPhones and one or two Galaxy models, I don't think even any newest generation phones sold that many.

Your post is an example of the kind of ridiculous unrealistic expectations that Apple has to deal with.
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post #21 of 37
Quote:
Originally Posted by digitalclips View Post

You do that too? I always have the 'better half's cast off' … so this Christmas i'll have an iPhone 5 at last 1smile.gif

I'm in the fortunate situation where I use my upgrade this year, then use my daughters upgrade next year, so on and so forth. She's 13 so it's a great deal for us both :-)
post #22 of 37
Quote:
Originally Posted by jragosta View Post


Based on what?

The lowest estimates for the 5C are around 2 M units. Keeping in mind that the 5C is essentially last year's phone (with a few minor improvements and a new case). How many previous generation phones have ever sold 2 M in one weekend?

Heck, other than the iPhones and one or two Galaxy models, I don't think even any newest generation phones sold that many.

Your post is an example of the kind of ridiculous unrealistic expectations that Apple has to deal with.

 

Apple has a P/E as I type this of 11.98, Google 26.98.    If Apple's P/E matched Googles, Apple stock would be trading this morning at

$1079.49.

 

So, my $980.9 Billion dollar question to you is why is Apple's P/E so low?  

 

If you can answer this, you'll probably understand why the growth of iPhone sales is important.

post #23 of 37
Quote:
Originally Posted by JamesMac View Post
 

 

Apple has a P/E as I type this of 11.98, Google 26.98.    If Apple's P/E matched Googles, Apple stock would be trading this morning at

$1079.49.

 

So, my $980.9 Billion dollar question to you is why is Apple's P/E so low?  

 

If you can answer this, you'll probably understand why the growth of iPhone sales is important.

 

because Apple is caught be tween a old school manufacturer, and a new school 'e-commerce'  potential, and is being seen as the worst of the former (expensive in eventual commodity markets (PCs, Phones, Tablets), thus a governor on long term profits) , and none of the latter (ITMS, App Store, iBooks, in App purchases, iAds, iCloud).  Why, because no business has spanned that before, and the law of large numbers block analysts from seeing past the leverage this technology is bringing to the total economy.

 

Amazon and Google have relatively low  barriers of entry by their primary products.   They make money and the stuff you're going to do anyway (search, read email, buy a book,)  Apple, you need to decide to buy there thing, and it's  basically $600 (or $2400 over 2 years).

 

Thusly, apple is valued only for the money it has made and kept. (stock price tracks retained earnings since 2003), where as Google and Amazon are tracked on the money they 'could potentially' earn.

 

So while iPhone growth is important for short term (especially with ASP remaining high), if the analysts had a clue, they would be measuring Apple Ecosystem Stickiness…  how many credit cards does Apple have on file,and what is the churn of accounts. low churn would mean that Apple is making more and more people customers. for the long game of micro payments (if you get 3Billion people spending $4 a month each, and you get 30% of that… that's ~4Billion a month in profits, without shipping a single device….)

 

 

I'll take my money in BitCoin… thank you

post #24 of 37
Quote:
Originally Posted by TheOtherGeoff View Post
 

 

because Apple is caught be tween a old school manufacturer, and a new school 'e-commerce'  potential, and is being seen as the worst of the former (expensive in eventual commodity markets (PCs, Phones, Tablets), thus a governor on long term profits) , and none of the latter (ITMS, App Store, iBooks, in App purchases, iAds, iCloud).  Why, because no business has spanned that before, and the law of large numbers block analysts from seeing past the leverage this technology is bringing to the total economy.

 

Amazon and Google have relatively low  barriers of entry by their primary products.   They make money and the stuff you're going to do anyway (search, read email, buy a book,)  Apple, you need to decide to buy there thing, and it's  basically $600 (or $2400 over 2 years).

 

Thusly, apple is valued only for the money it has made and kept. (stock price tracks retained earnings since 2003), where as Google and Amazon are tracked on the money they 'could potentially' earn.

 

So while iPhone growth is important for short term (especially with ASP remaining high), if the analysts had a clue, they would be measuring Apple Ecosystem Stickiness…  how many credit cards does Apple have on file,and what is the churn of accounts. low churn would mean that Apple is making more and more people customers. for the long game of micro payments (if you get 3Billion people spending $4 a month each, and you get 30% of that… that's ~4Billion a month in profits, without shipping a single device….)

 

 

I'll take my money in BitCoin… thank you

 

In my opinion this one of the best explanations I've seen on AI about Apple's stock price. Rather than talk about stock manipulation, you have given the main reason as, basically, transitional confusion between 2nd wave and 3rd wave business.

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post #25 of 37
Quote:
Originally Posted by TheOtherGeoff View Post
 

 

Amazon and Google have relatively low  barriers of entry by their primary products.   They make money and the stuff you're going to do anyway (search, read email, buy a book,)  Apple, you need to decide to buy there thing, and it's  basically $600 (or $2400 over 2 years).

 

Low barriers of entry? You understand what that means, right? That usually doesn't translate into high P/E ratio. 

post #26 of 37
these guys are very smart. the untapped consumer group is mid tier. the 5c price tier will capture these consumers who are still with a non-apple device. Also its a 'comfortable' leap from 4th gen to 5th gen without big damage to pockets. lastly, the big opportunity is china, the 5c will be the most popular product in china making the 5c the core profit engine. I think they did not expect such high demand on 5s as the upgrade in features were small. that just goes to show how loyal consumers are / powerful the brand is. interesting thing is that the premium / power iphone loyals are really waiting on the 6 with bigger screen. then the 5c users will upgrade to 5s. these are some smart people at apple. gotta give it to them.

PS - also the iwatch, iTV, iPad 5 still expected to come out over the next 6-9months. buy stock now. their innovation pipeline is strong.
post #27 of 37
With those sort of increased margins, Apple is doomed for sure. Wall Street is still prefers companies that chase after market share not profit margins. It's definitely terrible news that the iPhone 5s is selling out as fast as it comes in. Wall Street will interpret that as low, low inventory which will prove a major hindrance to high sales. Higher profit margins and now that Apple has top branding will certainly drive down Apple's share price further. Oh, well. Since Wall Street continues to notice that Tim Cook isn't Steve Jobs there doesn't seem to be any hope for the company.
post #28 of 37

Can we just round up these analysts and bury them in a chest at the bottom of the ocean?

Proud AAPL stock owner.

 

GOA

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Proud AAPL stock owner.

 

GOA

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post #29 of 37
Quote:
Originally Posted by JamesMac View Post

Apple has a P/E as I type this of 11.98, Google 26.98.    If Apple's P/E matched Googles, Apple stock would be trading this morning at
$1079.49.

So, my $980.9 Billion dollar question to you is why is Apple's P/E so low?  

If you can answer this, you'll probably understand why the growth of iPhone sales is important.

None of which has anything to do with your claim that the 5C has not sold well at all.

So where's your evidence that the 5C hasn't sold well? And what is 'well', keeping in mind what I said about it being last year's phone with minor changes?
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post #30 of 37
Quote:
Originally Posted by jragosta View Post


None of which has anything to do with your claim that the 5C has not sold well at all.

So where's your evidence that the 5C hasn't sold well? And what is 'well', keeping in mind what I said about it being last year's phone with minor changes?

 

I'm not sure if it sold well or not but for a phone that is being marketed as a new phone, one should expect it to at least sell better than thr 4s did last year in the same line-up position... and that is one thing we will never know.

 

In my estimation it should sell much better than the 4s did last year for the sheer fact that it is being advertised.

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post #31 of 37
Quote:
Originally Posted by TheOtherGeoff View Post
 

 

because Apple is caught be tween a old school manufacturer, and a new school 'e-commerce'  potential, and is being seen as the worst of the former (expensive in eventual commodity markets (PCs, Phones, Tablets), thus a governor on long term profits) , and none of the latter (ITMS, App Store, iBooks, in App purchases, iAds, iCloud).  Why, because no business has spanned that before, and the law of large numbers block analysts from seeing past the leverage this technology is bringing to the total economy.

 

Amazon and Google have relatively low  barriers of entry by their primary products.   They make money and the stuff you're going to do anyway (search, read email, buy a book,)  Apple, you need to decide to buy there thing, and it's  basically $600 (or $2400 over 2 years).

 

Thusly, apple is valued only for the money it has made and kept. (stock price tracks retained earnings since 2003), where as Google and Amazon are tracked on the money they 'could potentially' earn.

 

So while iPhone growth is important for short term (especially with ASP remaining high), if the analysts had a clue, they would be measuring Apple Ecosystem Stickiness…  how many credit cards does Apple have on file,and what is the churn of accounts. low churn would mean that Apple is making more and more people customers. for the long game of micro payments (if you get 3Billion people spending $4 a month each, and you get 30% of that… that's ~4Billion a month in profits, without shipping a single device….)

 

 

I'll take my money in BitCoin… thank you

 

Interesting post.  Sounds a little like IBM before Lou Gerstner took over and transitioned IBM into a services company (albeit that was primarily business customers not consumers).    Just goes to show that it can be done successfully.

 

The one tiny little detail that you may have overlooked can be illustrated by the following question:

 

How much revenue does Apple make from  ITMS, App Store, iBooks, in App purchases, iAds and iCloud from customers using non-Apple hardware?  

 

If the answer is zero or close to zero, then the whole business will still be predicated on iPhone and iPad sales.  With iPhone sales now at 13% of the smart phone market and declining, even if those customers spend far more than average, it's still going to limit growth versus a competitor who is at 80% and increasing.  

 

Nasty little side note is that apparently some slimy Apple users have installed Gmail, YouTube and Maps :)

post #32 of 37
Quote:
Originally Posted by digitalclips View Post


You do that too? I always have the 'better half's cast off' … so this Christmas i'll have an iPhone 5 at last 1smile.gif

 

Haha, no, we've moved to staggering our upgrades. I'll hang onto my 4S for one more year, whilst she'll upgrade from her 4 now which is on it's last legs (we got it a couple of months before the 4S was released, couldn't wait). Also, she's not as fastidious with her devices as I am, I wouldn't want her banged up cast-off!  (Not that I said that, mind you!)


Edited by sennen - 9/30/13 at 6:47pm
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post #33 of 37
Quote:
Originally Posted by island hermit View Post
 

 

In my opinion this one of the best explanations I've seen on AI about Apple's stock price. Rather than talk about stock manipulation, you have given the main reason as, basically, transitional confusion between 2nd wave and 3rd wave business.

 

I claim no great insight.

 

Everything I know about Apple Market Economics is from the discussions on Asymco.com, by Horace Dediu.

post #34 of 37
Quote:
Originally Posted by JamesMac View Post
 

 

Interesting post.  Sounds a little like IBM before Lou Gerstner took over and transitioned IBM into a services company (albeit that was primarily business customers not consumers).    Just goes to show that it can be done successfully.

 

The one tiny little detail that you may have overlooked can be illustrated by the following question:

 

How much revenue does Apple make from  ITMS, App Store, iBooks, in App purchases, iAds and iCloud from customers using non-Apple hardware?  

 

If the answer is zero or close to zero, then the whole business will still be predicated on iPhone and iPad sales.  With iPhone sales now at 13% of the smart phone market and declining, even if those customers spend far more than average, it's still going to limit growth versus a competitor who is at 80% and increasing.  

 

Nasty little side note is that apparently some slimy Apple users have installed Gmail, YouTube and Maps :)

last point first.

last) You apparently confused me with a google hater.  I'm a gmail domain owner.  It's not nasty. 

 

1) sounds nothing like IBM.  The IBM model is predicated on arbitrage labor rates and holding mainframes hostage, not on building a new delivery model for small and large businesses to implement commerce on their own.

 

2) razors for razor blades.  You're worrying about why gillette won't support schick razors, while Apple is selling a shaving experience.  

No one likes to get nicked while shaving.   All numbers lead that more people switch to iOS than away, and the first purchase may be due to economics, or ignorance (never owned a razor before… let's try this 99cent bic).   Once you realize that you're getting a lousy shave, you'll switch, if you can afford to, and if you can't, well, maybe we'll be  less expensive in a couple years, or you'll have more economic means.

 

The tiny little detail you're ignoring is that 20% of the capita controls 75% of the non-food, non-energy consumer commerce.  

And if the 'sellers' to those 20% can build a more compelling [consumer delight, lower cost to build, lower cost to operate, more $$ per transaction, less loss, and more return customers] experience with Apple, then all is good.

 

The detail you think is missing is actually just part of the very long game plan.

1) build a device that people value

2) extend that device into app environment developers can exploit

3) build in services that commerce requires

       - security 

       - frictionless point of purchase ['1-Touch']

       - payment services

       - delivery

       - marketing/advertising

       - loyalty programs

       - credit services

 

So the long games plays out that Apple can start lowering the price of it's device get the next 5%tile of economic activity, driving more developers and more commerce into supporting the platform, thus driving a better back end profit on the 1-30% of the cost of the transaction (visa model).   All Apple is really doing is providing a vetted customer.  Then they turn the crank again, taking another price cut at the end device, bringing in more of the market.

 

Apple also has enough money in the bank to become a bank, lowering it's costs even more (no transaction fees to them).

 

This is a virtuous circle relationship.  The early adopters paid for the developers, who then expanded the value which drove more buyers which attracts sellers to the market.

 

This eventually ends as the next economic turn of the pricing model will be a wash in profits.

 

Then it's time to disrupt again. 


Edited by TheOtherGeoff - 9/30/13 at 8:58pm
post #35 of 37
Quote:
Originally Posted by StruckPaper View Post
 

Low barriers of entry? You understand what that means, right? That usually doesn't translate into high P/E ratio. 

 

Consumers have a lower barrier of entry, not competitors.

 

in the terms of consumers able to become consumers of their model (a username a password a credit card, and I'm cranking transactions), it means a huge P/E ratio.  

 

And in google's case, they just need you to click.

post #36 of 37
Quote:
Originally Posted by digitalclips View Post

You do that too? I always have the 'better half's cast off' … so this Christmas i'll have an iPhone 5 at last 1smile.gif
That is hilarious. The biggest reason I was thrilled to see the 5c's colors was so that my wife could pick out a new phone and I'd be able to enjoy a 5 at last! I must say though... It will be tough to say goodbye to my stalwart 4. It has indeed been my trusty sidekick for quite a few years now. "Parting is such sweet sorrow..." Maybe I'll keep it in the truck for music and stuff, just for kicks...
post #37 of 37
Quote:
Originally Posted by TheOtherGeoff View Post


(post)
 

This is a pretty insightful post, as was your previous one. Thanks.
I didn't want to simply give a thumbs up.
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