Apple shareholders and gadget geeks are lamenting how an iPhone 5 was not announced.
One thing that occurs to me is that owners of the iPhone 4 probably benefit. Nobody is going to feel left out or insecure because they have an iPhone 4 rather than the marginally improved 4S. A real iPhone 5, however, would have made a lot of people feel inadequate for having the ‘old’ model.
Of course, it is exactly that pattern of new gadget envy that has allowed Apple to charge such premium prices for their gear and derive such substantial profits.
Author: Milan
In the spring of 2005, I graduated from the University of British Columbia with a degree in International Relations and a general focus in the area of environmental politics. In the fall of 2005, I began reading for an M.Phil in IR at Wadham College, Oxford.
Outside school, I am very interested in photography, writing, and the outdoors. I am writing this blog to keep in touch with friends and family around the world, provide a more personal view of graduate student life in Oxford, and pass on some lessons I've learned here.
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How much profit does Apple earn per iPhone? $368
What’s most astounding in that graph is that Foxxcon’s margin is the same size as their manufacturing cost. That’s astounding – it’s ok, ok I will put together this machine for you and I will have to pay 1$ per unit to pay my factory workers, build the factory, maintain it, etc.., but I will take another dollar for myself just because I can.
Of course, Apple’s share is not all profit. It cost something to design all that hardware and software, as well as run all their servers and stores.
Apple, on the other hand, makes a significant profit on every device it sells. Some analysts estimate that it books $368 on each iPhone. You may pay $199 for the phone, but that’s after a subsidy that the wireless carriers pay Apple. Google, in contrast, makes less than $10 annually per device for the ads it places on Android phones and tablets. That’s because it gives away the OS to phone makers as part of its quest for market share. Google’s revenue per phone won’t go up after the Motorola purchase closes–Motorola Mobility’s consumer-device division has lost money the past few quarters. So despite Google’s market-share lead, Apple is making all the money. By some estimates, it’s now sucking up half of all the profits in smartphones.
“Making a lot of profit on every device has always been Apple’s MO, but in recent years it has added something extra to this plan. In the past, Apple’s profit margins were a function of higher prices–the company sold computers at luxury price points and booked luxury profits. But in smartphones and tablets, Apple has managed to match mass-market prices and still make luxury profits. This neat trick is the work of new CEO Cook, who, during his years as COO, mastered the global production cycle. He did so by aggressively using cash to bolster the power of Apple’s considerable scale; several times over the past few years, he’s dipped into the company’s reserves to secure long-term contracts for important components like flash memory and touch screens. Buying up much of the world’s supply of these commodities has one convenient added benefit: It makes them more expensive for everyone else. “