Look at the iPhone 3GS. Even without changing a thing, they could probably offer this for $200. All of the tooling and design work is paid for many times over. Manufacturing should be a piece of cake because they've made millions. Bugs are all worked out so quality costs should be low. And so on. Yet a 3GS would easily compete with a $200 phone that the competitors are selling.
Yup. This strategy is also used in game consoles. Sony has been selling the PS3 for years, but it gets cheaper for them all the time because the component costs keep coming down. Also, like the console makers, Apple could continue to upgrade the fab processes used to make the chips in the 3GS, lowering costs while holding performance constant. A smaller, more efficient SOC might also allow Apple to cut the size and cost of the battery while maintaining battery life.
In short, there are a lot of ways for Apple to keep the performance of the 3GS constant while lowering costs a lot. And it's still a perfectly good phone for a lot of users. And they get to add more customers to the ecosystem, who might buy higher margin products in the future. Makes perfect sense to keep selling it.
This is actually brilliant - they extend the product life while bringing more users into the family. Those users will upgrade in the future as well. Don't assume the margin is much less either. As production volume increases and parts get consolidated to fewer chips, costs will continue to go down. The increase in market share is a bonus. The change in average margin irrelevant. Its a boost to gross profit. A year ago i was anti - Apple. Got an iPad as a gift, so we bought the phone. Now we'll upgrade to the "5" and pass the 4s to the missus. Am I switching back to a Windows phone or Android now? Not likely unless there's a real technological breakthrough. Only caveat - with the 5 the product is mature. Further personal upgrades will be less frequent in all likelihood.
It is possible to reach $130 in parts cost, but I doubt they will sell it for $200. They most probably would start at $299 or at the lowest $249 giving them a much higher margin.
They would probably do this with a phone that looked much like a 3gs (glass on only one side, plastic back) but with the A5 (32nm) and a 5mp camera. They might add a front facing camera if budget allows but it probably would not be able to.
Yep. Anyone who thinks Apple needs to make trashy, throw--away phones to compete with the trashy throw-away Android phones has completely misunderstood who Apple is and what value they bring to the equation.
Who says that Apple would sell a trashy, throw-away phone?
We're talking about keeping an older phone around slightly longer in order to go after the low priced market. The iPhone 3GS, for example, was a state of the art, high quality phone at one time. If they sold it today at a lower price, it would still be a high quality phone, albeit somewhat obsolete.
For people who don't need all the latest features, it might be a very good solution. Or even the iPhone 4.
The unsubsidized full retail price of a 3GS is $375. I doubt they'll be able to shave off $175 in production costs.
Take an economics course. Apple doesn't need to shave costs by anywhere near $175.
Current retail price is $375. On analyst indicates that average gross margins on Apple phones is 60%. http://tech.fortune.cnn.com/2010/03/02/what-doth-it-profit-an-iphone/
That means that the manufacturing cost is 40% of $375 or $150. They could sell it at $200 and still make 25% gross margin. But let's say that they're willing to accept a margin of 50% in order to go after high volume markets overseas and domestically. They only need to reduce the manufacturing cost by $50 in order to get a 50% margin on a $200 sale. Given that all of their tooling, design costs, and overheads have been totally absorbed and that the components in the 3GS and 4 are a couple of generations old, it's not hard to imagine a 33% reduction in manufacturing costs.
Even if the numbers vary from the above, the amount of cost savings needed is not all that great.
But that's the thing...I wouldn't characterize it as any kind of iOS fork. iPod nano is not iOS in any way. It has the veneer of iOS-ness, that's it. They did this to bring iOS mojo to iPod nano without actually cramming iOS into that device. I'm suggesting the same possibility for an possible iPhone nano.
If only it were that simple and easy. Sadly* these other companies also think about profits, not just revenue. Were it as easy as you suggest, it would have been done.
*Sadly for your theory, but happily because unprofitable companies have a nasty habit of going away fairly quickly.
first off, you wouldn't, but developers around the world would. An iPhone is a 'computer that makes calls' If it can't do what the 2012 iPhone 4s[++] can do, it's not a 'true' iOS device (marrying great HW with great SW for amazingly useful functionality for a 'reasonable' price)
It was a step up from the previous 'nano' == improvement
I can't see apple creating a brand (iphone) then creating a device (iPhone nano) that doesn't do what all iPhones do, or requires them to bifurcate their message (you got 2 choices... ). No... simple message...
Secondly, You're assuming these companies are just breaking even on a 'X year old' technology. Apple spends top dollar to get their capacity year 1 (and block all others from that capacity). Year 2, they renegotiate, year 3, the same, because there is no startup costs, there is scaling efficiencies, and most of all, there is competition (supply from other companies who now make the same thing because the original supplier was overbooked by Apple Year 1).
Apple won't demand a company go out of business to satisfy them, but Tim is magical in cutting his supply chain cost. I agree there is a limit of how low they can go, but in 2 years, component costs should drop by more than 150% (moore's law).
first off, you wouldn't, but developers around the world would. An iPhone is a 'computer that makes calls' If it can't do what the 2012 iPhone 4s[++] can do, it's not a 'true' iOS device (marrying great HW with great SW for amazingly useful functionality for a 'reasonable' price)
But I'm not claiming it would be an iOS device at all. You seem to be missing this point.
Quote:
Originally Posted by TheOtherGeoff
I can't see apple creating a brand (iphone) then creating a device (iPhone nano) that doesn't do what all iPhones do, or requires them to bifurcate their message (you got 2 choices... ). No... simple message...
Maybe they won't. Maybe they will. Even if you can't imagine it, I can.
Quote:
Originally Posted by TheOtherGeoff
Secondly, You're assuming these companies are just breaking even on a 'X year old' technology.
No I'm not.
Quote:
Originally Posted by TheOtherGeoff
Apple won't demand a company go out of business to satisfy them, but Tim is magical in cutting his supply chain cost.
What you call magical isn't.
Quote:
Originally Posted by TheOtherGeoff
I agree there is a limit of how low they can go, but in 2 years, component costs should drop by more than 150% (moore's law).
Except that not every component in the product is riding a Moore's Law cost curve. :sigh:
The unsubsidized full retail price of a 3GS is $375. I doubt they'll be able to shave off $175 in production costs.
what jragosta said.
key word... full retail.
and one more thing... meeting market demand.
If you figure that the contract was the gating factor "I can't spend $3000 over 2 years on a phone, but I am willing to spend $200 up front, and $50 a month, the months you need a cell phone."
Assume that is say 250Million people saying that around the world. 100Million are going to buy a month-to-month smartphone next year.
you're currently selling 5 million phones a year at $375, with a net profit 40% . (profit: 750M a year)
you drop cost to $200 (and production costs drops to 120), and sacrifice some markup to get 30% net margin (60/phone)
you get currently get ~20% of the general smart phone market... so assume 25%of this market (and only this market) because now your competing on equal terms with those cheap android phones.
So... now you are selling 25MILLION phones at 60 profit = 1.5Billion in profit
You doubled your annual profit on the Same SKU.
More importantly, You've C*ckBlocked Android at this entry level, and these users are likely very entry level (first apple product, save for an iPod)
You've increased the number of Apple iCloud users
You've increased the number of App Store buyers
You've increase the value of your 'network' (for app developers, for analysts, for other users)
This is why you need to keep your pricing umbrella low.
I would buy one - even if it's a 3GS. My daughter has been asking to get an iPhone to replace her POS Android phone. I'd pay $200, but not $400 or more.
They are not that bad. I have an xperia mini next to a fleet of Apple products and when roaming abroad it's always the xperia who gets the foreign sim, for the very simple reason that tethering has never been an issue and google maps is just fine whereever you go.
Who says that Apple would sell a trashy, throw-away phone?
We're talking about keeping an older phone around slightly longer in order to go after the low priced market. The iPhone 3GS, for example, was a state of the art, high quality phone at one time. If they sold it today at a lower price, it would still be a high quality phone, albeit somewhat obsolete.
For people who don't need all the latest features, it might be a very good solution. Or even the iPhone 4.
Take an economics course. Apple doesn't need to shave costs by anywhere near $175.
Current retail price is $375. On analyst indicates that average gross margins on Apple phones is 60%. http://tech.fortune.cnn.com/2010/03/02/what-doth-it-profit-an-iphone/
That means that the manufacturing cost is 40% of $375 or $150. They could sell it at $200 and still make 25% gross margin. But let's say that they're willing to accept a margin of 50% in order to go after high volume markets overseas and domestically. They only need to reduce the manufacturing cost by $50 in order to get a 50% margin on a $200 sale. Given that all of their tooling, design costs, and overheads have been totally absorbed and that the components in the 3GS and 4 are a couple of generations old, it's not hard to imagine a 33% reduction in manufacturing costs.
Even if the numbers vary from the above, the amount of cost savings needed is not all that great.
That 60% profit margin was on the higher capacity iPhone 4s not the 3GS, they're current profit margin on the 3GS is probably at 25% now. So at the current retail price of $375, the cost is $200 with a 47% profit margin.
That 60% profit margin was on the higher capacity iPhone 4s not the 3GS, they're current profit margin on the 3GS is probably at 25% now. So at the current retail price of $375, the cost is $200 with a 47% profit margin.
Really? Then please explain how it is that the chart in the article I provided estimated a 57.8% gross margin in 2009 - which was before the iPhone 4 was even introduced? And where in the world did you come up with your imagined 25% figure? I don't believe Apple has EVER sold a major product line at 25% gross margin - certainly not in the past decade or so.
Really? Then please explain how it is that the chart in the article I provided estimated a 57.8% gross margin in 2009 - which was before the iPhone 4 was even introduced? And where in the world did you come up with your imagined 25% figure? I don't believe Apple has EVER sold a major product line at 25% gross margin - certainly not in the past decade or so.
You really should stop just making things up.
And I qoute from your previous post "They could sell it at $200 and still make 25% gross margin", so who's making it up? Show me where it says 2009 anywhere on that chart.
There is a big market for a "messaging" Apple phone. No data plan required. The carriers here in the U.S. are colluding (I'm looking at you, AT&T and Verizon !!) to raise prices via these ridiculous "shared data" plans. Have you seen their current offerings of messaging phones? A bunch of crappy phones. The selection used to be better. The carriers want everyone, including kids on family plans, to move to smartphones, so they can increase what each family pays per month. And, they have increased their upgrade fees substantially to discourage people from upgrading frequently. They are also making a lot of noise about how much they would like to get rid of subsidies.
In two to three years, we just may see the end of subsidies. I am sure Apple has considered that this might happen. In fact, they might take steps to accelerate this turn of events. One thing they can do is offer a messaging phone with Wi-Fi but no 3G/4G. With iMessage, no texting plan required. Children are the heavy texters. If all their friends have an Apple phone, why would anybody need a texting plan? This phone would also be perfect for emerging markets. In the U.S., smaller carriers may have a shot at eroding the duopoly of AT&T and Verizon.
It baffles me why people think that every place has WiFi. Sure, not all iPad's need 3G/4G if the devices are only ever used at home (or at work), that doesn't help a whole lot in the while on foot, car, train, ferry, cruise ship or airplane.
It really depends on what people use it for. An iPad mini or iPod Touch with only 3G/4G is likely targeting the music/book segment. But as a messaging/blogging/news capture tool, without the 3G/4G radio, this is a failure.
What needs to happen, which we won't see for 20 years, is the patents on the 3G/4G radios to all expire (the 3G networks will be shut down long before this happens) before devices will be affordable. Almost 1/4 of a cost of a iPhone, and iPad goes into the radio equipment. At some point every device will come with all "current" generation radios, that you just add a sim card to. But at the current rate we're going we go through another "G" every 5 years, so the existing patents aren't going to expire until we're on 8G.
I'm actually surprised there isn't a standard 802.11 series "anonymous use AP isolation" mode that would allow any access point to be used by any 802.11 device in this mode, without having to negotiate a billing plan or ToS screen first.
And I qoute from your previous post "They could sell it at $200 and still make 25% gross margin", so who's making it up? Show me where it says 2009 anywhere on that chart.
I never said they should sell it at 25%. I said that based on historic numbers, they COULD if they wished. Furthermore, I said that the margin would be 25% if they lowered the price to $200. There's absolutely nothing in anything I said or any published information that says that the CURRENT 3GS margin is 25% - which is what you claimed in post #56.
Besides, it's irrelevant. You're the one who claimed that the link I provided was talking about the 4S. Since it has a reference to 2009, it obviously wasn't.
I really don't think you should be attempting to discuss finances when you can't even follow a simple hyperlink and obviously would rather pull numbers out of your rear than use realistic numbers.
Comments
Quote:
Originally Posted by al_bundy
no way, apple only does premium products
You mean like this?
http://store.apple.com/us/browse/home/shop_ipod/family/ipod_shuffle
Quote:
Originally Posted by jragosta
I agree completely.
Look at the iPhone 3GS. Even without changing a thing, they could probably offer this for $200. All of the tooling and design work is paid for many times over. Manufacturing should be a piece of cake because they've made millions. Bugs are all worked out so quality costs should be low. And so on. Yet a 3GS would easily compete with a $200 phone that the competitors are selling.
Yup. This strategy is also used in game consoles. Sony has been selling the PS3 for years, but it gets cheaper for them all the time because the component costs keep coming down. Also, like the console makers, Apple could continue to upgrade the fab processes used to make the chips in the 3GS, lowering costs while holding performance constant. A smaller, more efficient SOC might also allow Apple to cut the size and cost of the battery while maintaining battery life.
In short, there are a lot of ways for Apple to keep the performance of the 3GS constant while lowering costs a lot. And it's still a perfectly good phone for a lot of users. And they get to add more customers to the ecosystem, who might buy higher margin products in the future. Makes perfect sense to keep selling it.
This is actually brilliant - they extend the product life while bringing more users into the family. Those users will upgrade in the future as well. Don't assume the margin is much less either. As production volume increases and parts get consolidated to fewer chips, costs will continue to go down. The increase in market share is a bonus. The change in average margin irrelevant. Its a boost to gross profit. A year ago i was anti - Apple. Got an iPad as a gift, so we bought the phone. Now we'll upgrade to the "5" and pass the 4s to the missus. Am I switching back to a Windows phone or Android now? Not likely unless there's a real technological breakthrough. Only caveat - with the 5 the product is mature. Further personal upgrades will be less frequent in all likelihood.
The unsubsidized full retail price of a 3GS is $375. I doubt they'll be able to shave off $175 in production costs.
Hey blastdoor. Sorry, didn't see ur post - could saved the time. good thinking...
Originally Posted by Willy05
Only caveat - with the 5 the product is mature. Further personal upgrades will be less frequent in all likelihood.
They've only just begun.
It is possible to reach $130 in parts cost, but I doubt they will sell it for $200. They most probably would start at $299 or at the lowest $249 giving them a much higher margin.
They would probably do this with a phone that looked much like a 3gs (glass on only one side, plastic back) but with the A5 (32nm) and a 5mp camera. They might add a front facing camera if budget allows but it probably would not be able to.
Who says that Apple would sell a trashy, throw-away phone?
We're talking about keeping an older phone around slightly longer in order to go after the low priced market. The iPhone 3GS, for example, was a state of the art, high quality phone at one time. If they sold it today at a lower price, it would still be a high quality phone, albeit somewhat obsolete.
For people who don't need all the latest features, it might be a very good solution. Or even the iPhone 4.
Take an economics course. Apple doesn't need to shave costs by anywhere near $175.
Current retail price is $375. On analyst indicates that average gross margins on Apple phones is 60%.
http://tech.fortune.cnn.com/2010/03/02/what-doth-it-profit-an-iphone/
That means that the manufacturing cost is 40% of $375 or $150. They could sell it at $200 and still make 25% gross margin. But let's say that they're willing to accept a margin of 50% in order to go after high volume markets overseas and domestically. They only need to reduce the manufacturing cost by $50 in order to get a 50% margin on a $200 sale. Given that all of their tooling, design costs, and overheads have been totally absorbed and that the components in the 3GS and 4 are a couple of generations old, it's not hard to imagine a 33% reduction in manufacturing costs.
Even if the numbers vary from the above, the amount of cost savings needed is not all that great.
Quote:
Originally Posted by MJ1970
But that's the thing...I wouldn't characterize it as any kind of iOS fork. iPod nano is not iOS in any way. It has the veneer of iOS-ness, that's it. They did this to bring iOS mojo to iPod nano without actually cramming iOS into that device. I'm suggesting the same possibility for an possible iPhone nano.
If only it were that simple and easy. Sadly* these other companies also think about profits, not just revenue. Were it as easy as you suggest, it would have been done.
*Sadly for your theory, but happily because unprofitable companies have a nasty habit of going away fairly quickly.
first off, you wouldn't, but developers around the world would. An iPhone is a 'computer that makes calls' If it can't do what the 2012 iPhone 4s[++] can do, it's not a 'true' iOS device (marrying great HW with great SW for amazingly useful functionality for a 'reasonable' price)
It was a step up from the previous 'nano' == improvement
I can't see apple creating a brand (iphone) then creating a device (iPhone nano) that doesn't do what all iPhones do, or requires them to bifurcate their message (you got 2 choices... ). No... simple message...
Secondly, You're assuming these companies are just breaking even on a 'X year old' technology. Apple spends top dollar to get their capacity year 1 (and block all others from that capacity). Year 2, they renegotiate, year 3, the same, because there is no startup costs, there is scaling efficiencies, and most of all, there is competition (supply from other companies who now make the same thing because the original supplier was overbooked by Apple Year 1).
Apple won't demand a company go out of business to satisfy them, but Tim is magical in cutting his supply chain cost. I agree there is a limit of how low they can go, but in 2 years, component costs should drop by more than 150% (moore's law).
It's not 'sad', it's 'business'.
Quote:
Originally Posted by TheOtherGeoff
first off, you wouldn't, but developers around the world would. An iPhone is a 'computer that makes calls' If it can't do what the 2012 iPhone 4s[++] can do, it's not a 'true' iOS device (marrying great HW with great SW for amazingly useful functionality for a 'reasonable' price)
But I'm not claiming it would be an iOS device at all. You seem to be missing this point.
Quote:
Originally Posted by TheOtherGeoff
I can't see apple creating a brand (iphone) then creating a device (iPhone nano) that doesn't do what all iPhones do, or requires them to bifurcate their message (you got 2 choices... ). No... simple message...
Maybe they won't. Maybe they will. Even if you can't imagine it, I can.
Quote:
Originally Posted by TheOtherGeoff
Secondly, You're assuming these companies are just breaking even on a 'X year old' technology.
No I'm not.
Quote:
Originally Posted by TheOtherGeoff
Apple won't demand a company go out of business to satisfy them, but Tim is magical in cutting his supply chain cost.
What you call magical isn't.
Quote:
Originally Posted by TheOtherGeoff
I agree there is a limit of how low they can go, but in 2 years, component costs should drop by more than 150% (moore's law).
Except that not every component in the product is riding a Moore's Law cost curve. :sigh:
Quote:
Originally Posted by TheOtherGeoff
It's not 'sad', it's 'business'.
I was being facetious. :rolleyes:
Quote:
Originally Posted by dasanman69
The unsubsidized full retail price of a 3GS is $375. I doubt they'll be able to shave off $175 in production costs.
what jragosta said.
key word... full retail.
and one more thing... meeting market demand.
If you figure that the contract was the gating factor "I can't spend $3000 over 2 years on a phone, but I am willing to spend $200 up front, and $50 a month, the months you need a cell phone."
Assume that is say 250Million people saying that around the world. 100Million are going to buy a month-to-month smartphone next year.
you're currently selling 5 million phones a year at $375, with a net profit 40% . (profit: 750M a year)
you drop cost to $200 (and production costs drops to 120), and sacrifice some markup to get 30% net margin (60/phone)
you get currently get ~20% of the general smart phone market... so assume 25%of this market (and only this market) because now your competing on equal terms with those cheap android phones.
So... now you are selling 25MILLION phones at 60 profit = 1.5Billion in profit
You doubled your annual profit on the Same SKU.
More importantly, You've C*ckBlocked Android at this entry level, and these users are likely very entry level (first apple product, save for an iPod)
You've increased the number of Apple iCloud users
You've increased the number of App Store buyers
You've increase the value of your 'network' (for app developers, for analysts, for other users)
This is why you need to keep your pricing umbrella low.
Quote:
Originally Posted by jragosta
I would buy one - even if it's a 3GS. My daughter has been asking to get an iPhone to replace her POS Android phone. I'd pay $200, but not $400 or more.
They are not that bad. I have an xperia mini next to a fleet of Apple products and when roaming abroad it's always the xperia who gets the foreign sim, for the very simple reason that tethering has never been an issue and google maps is just fine whereever you go.
Quote:
Originally Posted by MJ1970
But I'm not claiming it would be an iOS device at all. You seem to be missing this point.
and I'm claiming it is.
Anything with the iPhone branding will
make calls
runs iOS.
runs iOS apps built for an iPhone.
Apple's brand discipline (say 'no' more often than not) demands this.
Quote:
Originally Posted by TheOtherGeoff
and I'm claiming it is.
Anything with the iPhone branding will
make calls
runs iOS.
runs iOS apps built for an iPhone.
Apple's brand discipline (say 'no' more often than not) demands this.
So we disagree on what options Apple might consider and how flexible that brand definition is. OK.
That 60% profit margin was on the higher capacity iPhone 4s not the 3GS, they're current profit margin on the 3GS is probably at 25% now. So at the current retail price of $375, the cost is $200 with a 47% profit margin.
Really? Then please explain how it is that the chart in the article I provided estimated a 57.8% gross margin in 2009 - which was before the iPhone 4 was even introduced? And where in the world did you come up with your imagined 25% figure? I don't believe Apple has EVER sold a major product line at 25% gross margin - certainly not in the past decade or so.
You really should stop just making things up.
And I qoute from your previous post "They could sell it at $200 and still make 25% gross margin", so who's making it up? Show me where it says 2009 anywhere on that chart.
It baffles me why people think that every place has WiFi. Sure, not all iPad's need 3G/4G if the devices are only ever used at home (or at work), that doesn't help a whole lot in the while on foot, car, train, ferry, cruise ship or airplane.
It really depends on what people use it for. An iPad mini or iPod Touch with only 3G/4G is likely targeting the music/book segment. But as a messaging/blogging/news capture tool, without the 3G/4G radio, this is a failure.
What needs to happen, which we won't see for 20 years, is the patents on the 3G/4G radios to all expire (the 3G networks will be shut down long before this happens) before devices will be affordable. Almost 1/4 of a cost of a iPhone, and iPad goes into the radio equipment. At some point every device will come with all "current" generation radios, that you just add a sim card to. But at the current rate we're going we go through another "G" every 5 years, so the existing patents aren't going to expire until we're on 8G.
I'm actually surprised there isn't a standard 802.11 series "anonymous use AP isolation" mode that would allow any access point to be used by any 802.11 device in this mode, without having to negotiate a billing plan or ToS screen first.
Shut up and take my money!
I never said they should sell it at 25%. I said that based on historic numbers, they COULD if they wished. Furthermore, I said that the margin would be 25% if they lowered the price to $200. There's absolutely nothing in anything I said or any published information that says that the CURRENT 3GS margin is 25% - which is what you claimed in post #56.
Besides, it's irrelevant. You're the one who claimed that the link I provided was talking about the 4S. Since it has a reference to 2009, it obviously wasn't.
As for the chart, click on the link I provided above. Look for the table marked exhibit 1.
http://tech.fortune.cnn.com/2010/03/02/what-doth-it-profit-an-iphone/
I really don't think you should be attempting to discuss finances when you can't even follow a simple hyperlink and obviously would rather pull numbers out of your rear than use realistic numbers.