I like the way you used safe terms. "if" "good chance" and "could" . nice.
Based on Apple's signal to the street that it seems to me that Apple is not interested in going after market share over margin. As a result, I'm gonna predict they will keep the price the same and continue to manage their inventory aggressively. That is my prediction, no "if" "good chance" or "could" about it. When I am wrong, go ahead and call me on it.
One other reason that I can see the price being lowered (and I have to thank sog and Jragosta for reminding me) is that, using the same early statistics, China has a burgeoning middle and upper middle class population. If these people are looking at the 5s and 5c and deciding that they would rather pay the $100 difference to the get the 5s then it might become obvious to Apple that a mid-tier phone at the usual Apple mark-down is unnecessary and a further reduction is required for the 5c to make it more attractive.
The real nail would be if Apple found out that the 4s was selling faster than the 5c is in the emerging markets.
[by the way... this has nothing to do with market share... more to do with price elasticity. ]
they sell the iphone 4 (not even a 4S) for price sensitive customers in China.
1) market share since iOS is a platform.
2) apple would make money. As we can see from the breakdown costs.
1. Market share is irrelevant to Apple. Just listen to Cook (and Jobs before him).
2. See #1.
Apple isn't mysterious about this at all. They see their purpose as being here to make great products that consumers will love. They are not interested in being in the commodity space of a category, despite knowing most of a market will always get commoditized. I have no doubt that Apple would make a $10 phone if they thought they could make the best phone possible. They don't because they haven't found a way to do it.
Sold my 2 yr old 4S for $270, since I paid $200 for it. Do you think we here in the US will be able to do that with "cheap" phone?
From my point of view these upgrades are better than free for me. yeah.. yeah.. I know about the carrier charges vs prepaid, but even if you factor that in its still a good deal.
I did the math for t-Mobile BYOD vs ATT subsidized and the result was that the ip5s phone on subsidy was costing approximately $1100 more over a 2 year period than BYOD on tmo, over the same period. Admittedly att had 3GB vs 2.5GB data on tmobile, but I never get close to my limit on t-mobile even when I'm traveling a lot.
So no, subsidized vs BYOD is not a good deal in this case.
No, it doesn't go both ways because Apple has actually set the market price and is managing its public business based on its understanding of how to do that accurately. Anonymous Internet persons, myself included, aren't relevant to identifying the optimum pricing at all.
I wasn't talking about Apple... but at least you had the good sense to bow out graciously.
they sell the iphone 4 (not even a 4S) for those customers. 5c is for 5c customers.. People who are driven to buy for the colors. Its not all about the money for the 5c. If money is key factor, there is the 4 (non-S) for those markets.
Now you are drifting.
To bring you back into focus...
What if the 5c is not selling in the numbers projected by Apple. Do you really think that Tim Cook will twiddle his thumbs and have a wait and see attitude? Really?
Apple does it's own thing. Period. Reducing margins to boost sales significantly is not one of them. Take all conventional analysis and desire to race to the bottom and flush it down the toilet. It does not apply. We had one of the worst recessions in history and during the thick of it people predicted that Apple sales will falter along with all other luxury items. "People haves less disposable income! blah blah". Well I bought a ton of shares at $100/share when these "analysts" forced the stock down through their conventional analysis and I am still laughing all the way to the bank. Never once did sales fall or margin get cut during the worst part of the recession.
yet, they still talk out the side of their butt for things they never got and still don't get about Apple and who its customers are.
Apple does not design beans and sell beans. These professional bean counters and internet forum economists will never get it. They can't quantify passion or loyalty. Stick that into your economic equations pipe along with price elasticity and smoke it.
I made a list the other day that I think makes up the price of an unlocked iPhone or Apple device in general.
Pay for devs work Retail work Manufacturing work Store electricity and water bills R D Health insurance and 401k Materials and chips used Lawyers and marketing team Cloud servers and administrators/ installers 24/7 assistance at apple.com, Apple Geniuses Stock price - Variable based on Investors and Economists
I'm really getting sick of this "teardown" BS. There is never mention of development, sales, production, marketing or any other costs which go into a product. All that is ever given is parts costs. Who cares? All this ever does it incite others to complain and say the product should cost less because it cost X to build. Again, these are just the parts. Does anyone really know, outside of Apple, what the actual cost of the product is? NO!!!!!!!!!!
Wow, just wow! Suddenly "everyone seems to know" what Apple should be charging for their phones ... see now .. I have always used the kiss method in making these kind of strategic decisions. Keep It Simple Stupid! Since the beginning of time there is only one sure way to figure out the "proper" price for anything .... supply and demand. When supply is larger than demand, prices fall ... when demand is larger than supply .... prices raise. It's a self managed system .... by the customers actions, not words. What could be more democratic than that?
Since Apple set new records for 3 day sales of their iPhones ... and, for the most part, inventory is low to non-existant, it seems to me Apple has "out thought" all of us again by pricing them exactly where they should be .... brilliant .. we should all just stop telling them what they should do and just continue to keep admiring what they do ... so, so well.
I'm really getting sick of this "teardown" BS. There is never mention of development, sales, production, marketing or any other costs which go into a product. All that is ever given is parts costs. Who cares? All this ever does it incite others to complain and say the product should cost less because it cost X to build. Again, these are just the parts. Does anyone really know, outside of Apple, what the actual cost of the product is? NO!!!!!!!!!!
Actually, I've seen a few articles in the past that talk about the cost of the extras. I've seen a range of amounts, from $40 to $75, depending on the phone and its stage of life. Those figures are the immediate costs and they get less and less as the phone gets older.
Wow, just wow! Suddenly "everyone seems to know" what Apple should be charging for their phones ... see now .. I have always used the kiss method in making these kind of strategic decisions. Keep It Simple Stupid! Since the beginning of time there is only one sure way to figure out the "proper" price for anything .... supply and demand. When supply is larger than demand, prices fall ... when demand is larger than supply .... prices raise. It's a self managed system .... by the customers actions, not words. What could be more democratic than that?
Since Apple set new records for 3 day sales of their iPhones ... and, for the most part, inventory is low to non-existant, it seems to me Apple has "out thought" all of us again by pricing them exactly where they should be .... brilliant .. we should all just stop telling them what they should do and just continue to keep admiring what they do ... so, so well.
That works for the 5s... it seems that demand will outstrip supply for a while. The same, apparently, can't be said for the 5c.
Using just the basic, manufacturing-only estimates from the article:
Comparing 5 and 5C, they cut the cost to produce the 5C by up to $30, and cut the retail price by $100. How is that a "better margin" again? Like this:
A 2% improvement in manufacturing margins? Meaning, for every $100 of retail sales, you get an extra $2 of it as 'profit'. Of course none of this takes into account packaging & distribution, marketing & advertising, software development, administrative, support or R&D costs, among many other factors, but it is a significant improvement on the surface.
Doesn't seem much until you start using multiples of 10s of millions of units sold then it adds up to a huge amount. This alone could explain what prompted Apple to update their guidance.
Please correct me if I'm wrong about my approach (and of course no assumptions as to the accuracy of the 'analyst estimates').
There is never mention of development, sales, production, marketing or any other costs which go into a product. All that is ever given is parts costs. Who cares? All this ever does it incite others to complain and say the product should cost less because it cost X to build. Again, these are just the parts. Does anyone really know, outside of Apple, what the actual cost of the product is? NO!!!!!!!!!!
Yes there is, straight from the horses mouth. Apple give out that number as in..
"Apple also said gross profit margin would come in near the top of a range of between 36 percent to 37 percent, in line with average forecasts for 36.7 percent."
So a $650 iPhone really costs apple $409 after all is said and done.
What I find interesting and unexpected is that the Samsung S3/4 had margins in the high %40's apparently due to the in-house effect, display, processor memory etc all made by Samsung.
I made a list the other day that I think makes up the price of an unlocked iPhone or Apple device in general.
Pay for devs work
Retail work
Manufacturing work
Store electricity and water bills
R D
Health insurance and 401k
Materials and chips used
Lawyers and marketing team
Cloud servers and administrators/ installers
24/7 assistance at apple.com, Apple Geniuses
Stock price - Variable based on Investors and Economists
To be fair, most of those would not be in the cost of goods sold and would therefore not be reflected in the grass margin.
Apple does it's own thing. Period. Reducing margins to boost sales significantly is not one of them. Take all conventional analysis and desire to race to the bottom and flush it down the toilet. It does not apply. We had one of the worst recessions in history and during the thick of it people predicted that Apple sales will falter along with all other luxury items. "People haves less disposable income! blah blah". Well I bought a ton of shares at $100/share when these "analysts" forced the stock down through their conventional analysis and I am still laughing all the way to the bank. Never once did sales fall or margin get cut during the worst part of the recession.
yet, they still talk out the side of their butt for things they never got and still don't get about Apple and who its customers are.
Apple does not design beans and sell beans. These professional bean counters and internet forum economists will never get it. They can't quantify passion or loyalty. Stick that into your economic equations pipe along with price elasticity and smoke it.
OMG!! It's like you are channeling Tim Cook. You seem to know exactly what he is thinking!! Spooky!
But clearly they can sell phones at $350-$450 and make 45%-60% profit.
Funny how people read things differently. I was thinking " margins on the 5S are HUGE" , others are thinking "there is no way they can se a device costing $173 for less than $550.
Not so queer as folk.
Well, as you can see from my previous post, Apple "earns" more than 65% on every phone they sell, but that's only taking into account the cost of manufacturing that phone (component and direct labor costs). Factor everything else in that I listed (the REST of 'cost of goods sold') and the margin reverses to roughly 68% total costs, 32% profit (altough Apple is currently guiding more like 36 ~ 37%).,
After taking into consideration ALL costs (manufacturing, distribution, payrolls, running the company, etc. etc.) their NET profit margin as a company is in the low 30-pecentile. Very respectable!
Most of Apple's net profit comes from the iPhone. Imagine for a moment that they took your "they could discount the iPhone 5C to $350" number and ran with it. Could they remain profitable? Nope. Probably not.
Here's why.
First, let's use the $100 baseline example: Apple sells one iPhone 5C for $100, it cost about $68 including all costs of goods sold, leaving $32 in profit. Good!
Using the same baseline, what you're suggesting looks more like this:
Apple sells one iPhone 5C for $65 (the difference between $550 and $350 is about 35% less), but it STILL costs about $68 including all costs of goods sold to sell that iPhone! Oops! That's a loss.
Here's the same perspective using full numbers:
ACTUAL: iPhone 5C (16GB): retail $550, manufacturing cost $175, OTHER costs of goods sold $199, NET profit: $176 (32%)
ALTERNATE : iPhone 5C (16GB): retail $350, manufacturing cost $175, OTHER costs of goods sold $199, NET profit: MINUS $24
And that's why my answer to you is no, Apple can't sell the iPhone 5C, in its current configuration, for $200 less, and still remain profitable.
Open to corrections and different perspectives if my maths or POV is wrong. Thanks.
2) apple would make money. As we can see from the breakdown costs.
2) no they wouldn't. see my illustrations using math in my previous posts. You're flat out wrong about this.
IF Apple produced a "cheap phone" (meaning, cost to manufacture was halved or more, making it a cheap-crap phone like barrel-bottom Samsung devices), then MAYBE they could turn a small, single-digit profit on it (basically, what the rest of the market does). Perhaps they'd expand a bit of overall share (which they are already doing anyway) at the expense of profit (and margins), but gaining what exactly? Do you really want them to short their brand like that? Is that what YOU see in the value of the stock you hold? Psh...
Apple does it's own thing. Period. Reducing margins to boost sales significantly is not one of them. Take all conventional analysis and desire to race to the bottom and flush it down the toilet. It does not apply. We had one of the worst recessions in history and during the thick of it people predicted that Apple sales will falter along with all other luxury items. "People haves less disposable income! blah blah". Well I bought a ton of shares at $100/share when these "analysts" forced the stock down through their conventional analysis and I am still laughing all the way to the bank. Never once did sales fall or margin get cut during the worst part of the recession.
yet, they still talk out the side of their butt for things they never got and still don't get about Apple and who its customers are.
Apple does not design beans and sell beans. These professional bean counters and internet forum economists will never get it. They can't quantify passion or loyalty. Stick that into your economic equations pipe along with price elasticity and smoke it.
OMG!! It's like you are channeling Tim Cook. You seem to know exactly what he is thinking!! Spooky!
thanks, I get that a lot.
What is spooky is to witness the same line of criticism and rethoric of conventional economics and market trends from analysts and internet forum economists every single year for the past 10 years; only to see them eat crow. Never fails. Its like witnessing the real life version of the "Groundhog Day" movie. "Okay, campers, rise and shine, and don't forget your booties 'cause it's cooooold out there today!!.... That's right, woodchuck-chuckers - it's...GROUNDHOG DAY today!"
Comments
So, this will make 5c a better deal?
I like the way you used safe terms. "if" "good chance" and "could" . nice.
One other reason that I can see the price being lowered (and I have to thank sog and Jragosta for reminding me) is that, using the same early statistics, China has a burgeoning middle and upper middle class population. If these people are looking at the 5s and 5c and deciding that they would rather pay the $100 difference to the get the 5s then it might become obvious to Apple that a mid-tier phone at the usual Apple mark-down is unnecessary and a further reduction is required for the 5c to make it more attractive.
[by the way... this has nothing to do with market share... more to do with price elasticity. ]
they sell the iphone 4 (not even a 4S) for price sensitive customers in China.
2. See #1.
Apple isn't mysterious about this at all. They see their purpose as being here to make great products that consumers will love. They are not interested in being in the commodity space of a category, despite knowing most of a market will always get commoditized. I have no doubt that Apple would make a $10 phone if they thought they could make the best phone possible. They don't because they haven't found a way to do it.
Sold my 2 yr old 4S for $270, since I paid $200 for it. Do you think we here in the US will be able to do that with "cheap" phone?
From my point of view these upgrades are better than free for me. yeah.. yeah.. I know about the carrier charges vs prepaid, but even if you factor that in its still a good deal.
I did the math for t-Mobile BYOD vs ATT subsidized and the result was that the ip5s phone on subsidy was costing approximately $1100 more over a 2 year period than BYOD on tmo, over the same period. Admittedly att had 3GB vs 2.5GB data on tmobile, but I never get close to my limit on t-mobile even when I'm traveling a lot.
So no, subsidized vs BYOD is not a good deal in this case.
No, it doesn't go both ways because Apple has actually set the market price and is managing its public business based on its understanding of how to do that accurately. Anonymous Internet persons, myself included, aren't relevant to identifying the optimum pricing at all.
I wasn't talking about Apple... but at least you had the good sense to bow out graciously.
they sell the iphone 4 (not even a 4S) for those customers. 5c is for 5c customers.. People who are driven to buy for the colors. Its not all about the money for the 5c. If money is key factor, there is the 4 (non-S) for those markets.
Now you are drifting.
Apple does it's own thing. Period. Reducing margins to boost sales significantly is not one of them. Take all conventional analysis and desire to race to the bottom and flush it down the toilet. It does not apply. We had one of the worst recessions in history and during the thick of it people predicted that Apple sales will falter along with all other luxury items. "People haves less disposable income! blah blah". Well I bought a ton of shares at $100/share when these "analysts" forced the stock down through their conventional analysis and I am still laughing all the way to the bank. Never once did sales fall or margin get cut during the worst part of the recession.
yet, they still talk out the side of their butt for things they never got and still don't get about Apple and who its customers are.
Apple does not design beans and sell beans. These professional bean counters and internet forum economists will never get it. They can't quantify passion or loyalty. Stick that into your economic equations pipe along with price elasticity and smoke it.
Pay for devs work
Retail work
Manufacturing work
Store electricity and water bills
R D
Health insurance and 401k
Materials and chips used
Lawyers and marketing team
Cloud servers and administrators/ installers
24/7 assistance at apple.com, Apple Geniuses
Stock price - Variable based on Investors and Economists
I made a list the other day that I think makes up the price of an unlocked iPhone or Apple device in general.
Pay for devs work
Retail work
Manufacturing work
Store electricity and water bills
R D
Health insurance and 401k
Materials and chips used
Lawyers and marketing team
Cloud servers and administrators/ installers
24/7 assistance at apple.com, Apple Geniuses
Stock price - Variable based on Investors and Economists
pay advertisers
pay off politicians
pay off patent trolls
pay software IP licensing fees
pay HW IP licensing fees
pay retail real estate leases
pay taxes ;-)
after all this people still want a $99 unlocked off-contract iPhone. Keep dreaming... while you are doing that save your pennies.
Wow, just wow! Suddenly "everyone seems to know" what Apple should be charging for their phones ... see now .. I have always used the kiss method in making these kind of strategic decisions. Keep It Simple Stupid! Since the beginning of time there is only one sure way to figure out the "proper" price for anything .... supply and demand. When supply is larger than demand, prices fall ... when demand is larger than supply .... prices raise. It's a self managed system .... by the customers actions, not words. What could be more democratic than that?
Since Apple set new records for 3 day sales of their iPhones ... and, for the most part, inventory is low to non-existant, it seems to me Apple has "out thought" all of us again by pricing them exactly where they should be .... brilliant .. we should all just stop telling them what they should do and just continue to keep admiring what they do ... so, so well.
I'm really getting sick of this "teardown" BS. There is never mention of development, sales, production, marketing or any other costs which go into a product. All that is ever given is parts costs. Who cares? All this ever does it incite others to complain and say the product should cost less because it cost X to build. Again, these are just the parts. Does anyone really know, outside of Apple, what the actual cost of the product is? NO!!!!!!!!!!
Actually, I've seen a few articles in the past that talk about the cost of the extras. I've seen a range of amounts, from $40 to $75, depending on the phone and its stage of life. Those figures are the immediate costs and they get less and less as the phone gets older.
Wow, just wow! Suddenly "everyone seems to know" what Apple should be charging for their phones ... see now .. I have always used the kiss method in making these kind of strategic decisions. Keep It Simple Stupid! Since the beginning of time there is only one sure way to figure out the "proper" price for anything .... supply and demand. When supply is larger than demand, prices fall ... when demand is larger than supply .... prices raise. It's a self managed system .... by the customers actions, not words. What could be more democratic than that?
Since Apple set new records for 3 day sales of their iPhones ... and, for the most part, inventory is low to non-existant, it seems to me Apple has "out thought" all of us again by pricing them exactly where they should be .... brilliant .. we should all just stop telling them what they should do and just continue to keep admiring what they do ... so, so well.
That works for the 5s... it seems that demand will outstrip supply for a while. The same, apparently, can't be said for the 5c.
Using just the basic, manufacturing-only estimates from the article:
Comparing 5 and 5C, they cut the cost to produce the 5C by up to $30, and cut the retail price by $100. How is that a "better margin" again? Like this:
iPhone 5 (16GB): retail $650, cost $205, margin of (manufacturing only) cost: 33.9%
iPhone 5C (16GB): retail $550, cost $175, margin of (manufacturing only) cost 31.9%
A 2% improvement in manufacturing margins? Meaning, for every $100 of retail sales, you get an extra $2 of it as 'profit'. Of course none of this takes into account packaging & distribution, marketing & advertising, software development, administrative, support or R&D costs, among many other factors, but it is a significant improvement on the surface.
Doesn't seem much until you start using multiples of 10s of millions of units sold then it adds up to a huge amount. This alone could explain what prompted Apple to update their guidance.
Please correct me if I'm wrong about my approach (and of course no assumptions as to the accuracy of the 'analyst estimates').
There is never mention of development, sales, production, marketing or any other costs which go into a product. All that is ever given is parts costs. Who cares? All this ever does it incite others to complain and say the product should cost less because it cost X to build. Again, these are just the parts. Does anyone really know, outside of Apple, what the actual cost of the product is? NO!!!!!!!!!!
Yes there is, straight from the horses mouth. Apple give out that number as in..
To be fair, most of those would not be in the cost of goods sold and would therefore not be reflected in the grass margin.
Apple does it's own thing. Period. Reducing margins to boost sales significantly is not one of them. Take all conventional analysis and desire to race to the bottom and flush it down the toilet. It does not apply. We had one of the worst recessions in history and during the thick of it people predicted that Apple sales will falter along with all other luxury items. "People haves less disposable income! blah blah". Well I bought a ton of shares at $100/share when these "analysts" forced the stock down through their conventional analysis and I am still laughing all the way to the bank. Never once did sales fall or margin get cut during the worst part of the recession.
yet, they still talk out the side of their butt for things they never got and still don't get about Apple and who its customers are.
Apple does not design beans and sell beans. These professional bean counters and internet forum economists will never get it. They can't quantify passion or loyalty. Stick that into your economic equations pipe along with price elasticity and smoke it.
OMG!! It's like you are channeling Tim Cook. You seem to know exactly what he is thinking!! Spooky!
But clearly they can sell phones at $350-$450 and make 45%-60% profit.
Funny how people read things differently. I was thinking " margins on the 5S are HUGE" , others are thinking "there is no way they can se a device costing $173 for less than $550.
Not so queer as folk.
Well, as you can see from my previous post, Apple "earns" more than 65% on every phone they sell, but that's only taking into account the cost of manufacturing that phone (component and direct labor costs). Factor everything else in that I listed (the REST of 'cost of goods sold') and the margin reverses to roughly 68% total costs, 32% profit (altough Apple is currently guiding more like 36 ~ 37%).,
After taking into consideration ALL costs (manufacturing, distribution, payrolls, running the company, etc. etc.) their NET profit margin as a company is in the low 30-pecentile. Very respectable!
Most of Apple's net profit comes from the iPhone. Imagine for a moment that they took your "they could discount the iPhone 5C to $350" number and ran with it. Could they remain profitable? Nope. Probably not.
Here's why.
First, let's use the $100 baseline example: Apple sells one iPhone 5C for $100, it cost about $68 including all costs of goods sold, leaving $32 in profit. Good!
Using the same baseline, what you're suggesting looks more like this:
Apple sells one iPhone 5C for $65 (the difference between $550 and $350 is about 35% less), but it STILL costs about $68 including all costs of goods sold to sell that iPhone! Oops! That's a loss.
Here's the same perspective using full numbers:
ACTUAL: iPhone 5C (16GB): retail $550, manufacturing cost $175, OTHER costs of goods sold $199, NET profit: $176 (32%)
ALTERNATE : iPhone 5C (16GB): retail $350, manufacturing cost $175, OTHER costs of goods sold $199, NET profit: MINUS $24
And that's why my answer to you is no, Apple can't sell the iPhone 5C, in its current configuration, for $200 less, and still remain profitable.
Open to corrections and different perspectives if my maths or POV is wrong. Thanks.
Well two reasons.
1) market share since iOS is a platform.
2) apple would make money. As we can see from the breakdown costs.
2) no they wouldn't. see my illustrations using math in my previous posts. You're flat out wrong about this.
Apple does it's own thing. Period. Reducing margins to boost sales significantly is not one of them. Take all conventional analysis and desire to race to the bottom and flush it down the toilet. It does not apply. We had one of the worst recessions in history and during the thick of it people predicted that Apple sales will falter along with all other luxury items. "People haves less disposable income! blah blah". Well I bought a ton of shares at $100/share when these "analysts" forced the stock down through their conventional analysis and I am still laughing all the way to the bank. Never once did sales fall or margin get cut during the worst part of the recession.
yet, they still talk out the side of their butt for things they never got and still don't get about Apple and who its customers are.
Apple does not design beans and sell beans. These professional bean counters and internet forum economists will never get it. They can't quantify passion or loyalty. Stick that into your economic equations pipe along with price elasticity and smoke it.
OMG!! It's like you are channeling Tim Cook. You seem to know exactly what he is thinking!! Spooky!
thanks, I get that a lot.