Apple's iPad pricing, distribution stronger than iPhone
Apple will have an easier time holding onto iOS market share in the tablet market than in smartphones, writes an analyst with an outperform rating on the company, thanks to more competitive pricing and better distribution.
"We see several differences between Apple?s approach to the smartphone and tablet markets," Toni Sacconaghi wrote for Bernstein Research in note covered by Barrons.
"The subsidy model allowed Apple to earn gross margins well above 50% on the iPhone, compared to ~30% on non-subsidized hardware products (Mac, iPad, iPod). Other smartphone vendors using free Android software were able to price below Apple for unsubsidized phones and still earn gross margins above 30%, especially on high-end smartphones."
Apple's iPhone carrier subsidies have previously been cited as a risk for the company, based on the reasoning that, were mobile providers to drop the program, users would be pushed toward cheaper phones and be more hesitant to pay the premium price of iPhone-class hardware.
Of course, the reason why carriers are paying Apple subsidies is because the attraction of the iPhone is selling their more lucrative data services. Attempts to replicate the iPhone's draw using Android alternatives, a strategy pursued by Verizon Wireless in its "Droid" campaign of 2010, haven't been nearly as successful.
That's resulted in Apple taking in the lion's share of the mobile industry's profits. If Apple were simply trying to win a trophy for market share, it could have simply produced 60 million iPhone 3GS units and distributed them at cost in developing countries during the winter quarter.
With a 2009 manufacturing cost of around $180 per phone (likely much less today), bragging rights to "shipping the most phones" in the quarter would have cost Apple less than $11 billion (likely much less, as dumping 60 million iPhones in any country would also have had a negative impact on competitors' sales).
Setting and maintaining such a "market share record," however, is not as important to Apple as producing higher quality devices and selling them at a profit unmatched by any other manufacturer.
Otherwise, Apple could simply have blown through much of its $13.1 billion quarterly profit to "beat" Samsung in market share, rather than allowing Samsung to do that while earning $4.8 billion less than Apple.
"Apple did not leave a similar price umbrella [to the iPhone] under the iPad," Sacconaghi wrote. "In fact, the iPad was cheaper than tablets with inferior features when it was first released. Now there are competitive Android tablet offerings at lower price points, especially because competitors such as Amazon and Google are aggressively pricing hardware in as their businesses makes gross profit on content and search, respectively."
The difference between the iPhone and iPad pricing strategies means that while competitors could earn smaller profit margins of around 30 percent in competition with the far more profitable iPhone, in the iPad area they can only give away their devices in hopes that dumping a loss leader will create a much smaller market for selling content or pushing ads.
While Google and Amazon have a business model to distribute low profit tablets in the U.S., that same plan isn't working out globally because neither company has established content stores with the global reach of Apple's iTunes and App Store. That highlights a second strength of the iPad over its tablet challengers, one that isn't shared with the iPhone.
"By contrast, the iPad has stronger global distribution through Apple stores, carrier partners and network of resellers, including third-party retail outlets (e.g., Best Buy, Wal-Mart, carrier stores) and third-party websites (e.g., Amazon.com)."
The fact that Nokia, Samsung and Blackberry still have much greater global mobile phone distribution channels than Apple is a fact that's never mentioned when market share figures are bandied about.
Most users are aware, however, that Apple was exclusive to AT&T in the U.S. until 2011, when Verizon began carrying it. Sprint didn't pick up the iPhone until the end of that year, and a variety of other significant U.S. carriers, including T-Mobile and a variety of regional carriers, didn't get the iPhone until its fifth generation.
Apple is also still negotiating carrier agreements for the iPhone around the world, including China Mobile, the world's largest carrier by subscriber count, and NTT Docomo, Japan's largest, which is rapidly bleeding subscribers to its iPhone-bearing competitors.
The fact that Apple has the smartphone market share it currently has despite much weaker distribution (since the iPhone's inception) makes it no surprise why Apple maintains an even stronger share within the tablet market, where its distribution is superior to its loss leader tablet competitors.
Sacconaghi maintains a $725 price target for Apple, which closed today at $431.99, just $13 above its 52 week low and dramatically below its all time high of $705 reached last September.
"We see several differences between Apple?s approach to the smartphone and tablet markets," Toni Sacconaghi wrote for Bernstein Research in note covered by Barrons.
iPhone subsidies and the pricing umbrella
"The iPhone left a price umbrella for other smartphone vendors to offer cheaper unsubsidized smartphones, even at the premium end," Sacconaghi wrote."The subsidy model allowed Apple to earn gross margins well above 50% on the iPhone, compared to ~30% on non-subsidized hardware products (Mac, iPad, iPod). Other smartphone vendors using free Android software were able to price below Apple for unsubsidized phones and still earn gross margins above 30%, especially on high-end smartphones."
Apple's iPhone carrier subsidies have previously been cited as a risk for the company, based on the reasoning that, were mobile providers to drop the program, users would be pushed toward cheaper phones and be more hesitant to pay the premium price of iPhone-class hardware.
Of course, the reason why carriers are paying Apple subsidies is because the attraction of the iPhone is selling their more lucrative data services. Attempts to replicate the iPhone's draw using Android alternatives, a strategy pursued by Verizon Wireless in its "Droid" campaign of 2010, haven't been nearly as successful.
The cost of market share: profitability
While Apple's competitors, including Android licensees, BlackBerry, Nokia and other Windows Phone partners, have all focused on market share by offering cheaper devices that can undercut the iPhone, Apple has intentionally focused on the much more lucrative, high end smartphone market.That's resulted in Apple taking in the lion's share of the mobile industry's profits. If Apple were simply trying to win a trophy for market share, it could have simply produced 60 million iPhone 3GS units and distributed them at cost in developing countries during the winter quarter.
Apple could simply have blown through much of its $13.1 billion quarterly profit to "beat" Samsung in market share, rather than allowing Samsung to do that while earning $4.8 billion less than Apple.
With a 2009 manufacturing cost of around $180 per phone (likely much less today), bragging rights to "shipping the most phones" in the quarter would have cost Apple less than $11 billion (likely much less, as dumping 60 million iPhones in any country would also have had a negative impact on competitors' sales).
Setting and maintaining such a "market share record," however, is not as important to Apple as producing higher quality devices and selling them at a profit unmatched by any other manufacturer.
Otherwise, Apple could simply have blown through much of its $13.1 billion quarterly profit to "beat" Samsung in market share, rather than allowing Samsung to do that while earning $4.8 billion less than Apple.
The iPad offers no room for competition
While Apple's smartphone market share has been held back by larger volumes of cheaper devices from its competitors, the same hasn't occured with the iPod touch and iPad, which have held onto majority market share longer."Apple did not leave a similar price umbrella [to the iPhone] under the iPad," Sacconaghi wrote. "In fact, the iPad was cheaper than tablets with inferior features when it was first released. Now there are competitive Android tablet offerings at lower price points, especially because competitors such as Amazon and Google are aggressively pricing hardware in as their businesses makes gross profit on content and search, respectively."
The difference between the iPhone and iPad pricing strategies means that while competitors could earn smaller profit margins of around 30 percent in competition with the far more profitable iPhone, in the iPad area they can only give away their devices in hopes that dumping a loss leader will create a much smaller market for selling content or pushing ads.
While Google and Amazon have a business model to distribute low profit tablets in the U.S., that same plan isn't working out globally because neither company has established content stores with the global reach of Apple's iTunes and App Store. That highlights a second strength of the iPad over its tablet challengers, one that isn't shared with the iPhone.
The iPad has better distribution
"Distribution for the iPhone, at ~240 carriers," Sacconaghi wrote, "is significantly lower than Samsung and Nokia, which have essentially global distribution, and Blackberry, which is distributed by >2x the number of carriers."By contrast, the iPad has stronger global distribution through Apple stores, carrier partners and network of resellers, including third-party retail outlets (e.g., Best Buy, Wal-Mart, carrier stores) and third-party websites (e.g., Amazon.com)."
The fact that Nokia, Samsung and Blackberry still have much greater global mobile phone distribution channels than Apple is a fact that's never mentioned when market share figures are bandied about.
Most users are aware, however, that Apple was exclusive to AT&T in the U.S. until 2011, when Verizon began carrying it. Sprint didn't pick up the iPhone until the end of that year, and a variety of other significant U.S. carriers, including T-Mobile and a variety of regional carriers, didn't get the iPhone until its fifth generation.
Apple is also still negotiating carrier agreements for the iPhone around the world, including China Mobile, the world's largest carrier by subscriber count, and NTT Docomo, Japan's largest, which is rapidly bleeding subscribers to its iPhone-bearing competitors.
The fact that Apple has the smartphone market share it currently has despite much weaker distribution (since the iPhone's inception) makes it no surprise why Apple maintains an even stronger share within the tablet market, where its distribution is superior to its loss leader tablet competitors.
Sacconaghi maintains a $725 price target for Apple, which closed today at $431.99, just $13 above its 52 week low and dramatically below its all time high of $705 reached last September.
Comments
hmm
Sorry, but none of the benefits you cite for Android are real:
- App store is still significantly inferior to iOS app store. Furthermore, since it is not curated, it contains significant amounts of malware.
- Security is actually a weakness. There are extensive security problems with Android that don't occur with iOS.
- Enterprise adoption is far behind iOS.
And, by the way, where is the consumer supposed to find 'highly trained sales people"? The only highly trained sales people are in the Apple Store.
Odds are Apple's share price is going to tank again this quarter, so Apple is definitely moving in the wrong direction in a high-flying market where almost every company on the planet's share price has gone up. That points to me that Apple is dead, dead money and not worth the paper the stock certificates are printed on as far as Wall Street is concerned. Apple doesn't seem likely to shake its DOOOOOOMED moniker any time soon.
I currently own an iPad 2. I love the device and it's crazy the stuff it does. But what is more crazy is what it can do. If apple were to make a stylus much like the S pen, I'd be iPad owner for life. I currently own an iPhone 5 (with a faulty standby button..., plan to visit the store one day) and a MacBook so no one can say I hate apple. But the iPad is largely limited without a pen IMO. I use it for college, I am currently a junior in engineering. So my notes can be very complex. The iPad works great for a liberal arts class but it's basically worthless when I need to take complex and precise notes. So I am stuck with my binder.
Due to this, I plan to research the galaxy note 10.1. Ive heard the software isn't great (but improving) and I do not like the 16:9. But I am willing to get over both for a pen.
If apple doesn't do something soon (depending on my need) I may shift to the note for my tablet.
I can live just fine without iCloud because I am computer knowledgable and can seek the help from some friends on how to may an android device much better. My friends do some nice programming so I'm sure I'll do just fine. I'd rather see apple keep me as a customer in the tablet world though.
A lot of people follow my word on technology based upon their needs, wants, and money. (Yes, it is true that an apple product is not always best in every situation, if you say otherwise, you are just bsing yourself).
PS: A flat stylus from BB is still pretty useless. My friend manages to take notes with one but they lack accuracy and precision. Additionally, they take up way too much room and it's not fluid like a S pen could do.
Typed on my iPhone 5 so my spelling and grammer may suck.
Surely this is sarcasm.
Wall Street are baboons when it comes to predicting Apple and baboons follow other baboons:
Example of Wall Street's historical accuracy:
http://www.asymco.com/wp-content/uploads/2011/12/Screen-Shot-2011-12-16-at-12-16-8.31.26-PM.png
Cheaper than a new tablet. Amazing action (much better than the GN stylus).
http://adonit.net/jot/touch/
Quote:
Originally Posted by eksodos
Consumers must decide whether they want these devices. If they do, should they consider a more affordable Android solution? Android has many benefits including a burgeoning app store, security applications such as Norton, and intrepid enterprise adoption. The choice isn't always clear for consumers and that's why they must do their research by visiting independent stores that stock all kinds of devices. High trained sales people can help consumers make a more informed decision.
Ok,
1 ) I know you're delusional because you cited Norton as a benefit.. Who does that?
2 ) iOS has virtually no viruses except with jailbroken phones that install side-loaded items.So having anti-virus, again, especially norton, not a benefit. Many, like myself, love the stable, and malware free iOS. It's refreshing not having to look over my shoulder for the next infection.
3 ) Android app store is growing, I'll grant you, but so is the number of malware items.. because it's not monitored.
4 ) Enterprise is growing, but slowly, because of the above security issues.
5 ) Samsung for example, is creating their own security solutions, in an attempt to plug holes.. creating even more fragmentation. Gov't is doing a trial with Android and iOS, but they are going a specialized, custom Android build to do it.. Thats says TONS as to their 'confidence'.. iOS, nope, as is with encryption and other security features enabled. Can't remember the numbers, but read they were spending a ton of money to have a company provide custom phones.. iPhones, mainly they just custom remove the camera.
This is common sense.. we need a fucking analyst to state the obvious? The tablet market is similar to the mp3 player market in terms of dynamics. The smartphone market is completely different, with additional players such as the carriers, who have their own reasons for pushing certain phones. iPad for the most part doesn't need to deal with that bullshit, and the sales are direct o consumer where Apple can dictate the entire buying process.
Quote:
Originally Posted by crazy_mac_lover
I will try all my effort even cash advance from credit card to buy as many AAPL as possible at this bargin price .
Don't be stupid. There's no logic in the stock market, why risk it?
Quote:
Originally Posted by Justin101
You seem quite proud to be paying for overpriced products! :-)
Be gone.
Quote:
Originally Posted by Slurpy
This is common sense.. we need a fucking analyst to state the obvious?
We don't, but they'll continue to do so. In fact when they state the obvious is probably them doing their best job, because it's usually when they are correct.
Quote:
Originally Posted by Justin101
You seem quite proud to be paying for overpriced products! :-)
Incredible 1st post. I predict you will not be banned, and therefore will share many insightful posts such as the above with us in the future.
Two groups of people believe Apple will never release a cheaper iPhone.
1) apple snobs
2) Android lovers.
Fie on ye both
Quote:
Originally Posted by asdasd
Two groups of people believe Apple will never release a cheaper iPhone.
1) apple snobs
2) Android lovers.
Fie on ye both
Again, why do they need to? Why do you believe Apple wants to own market share when they already own most of the profit? You and too many others like you misunderstand what Apple wants to brag about.