IPhone: 4% of market, 50% of profit

http://tech.fortune.cnn.com/2010/10/30/iphone-4-of-market-50-of-profit/?hpt=T2

by kirpekar • 16 years ago

52 50 16 years ago

tech.fortune.cnn.com

brudgers2• 16 years ago

I see the graphics. I see the app store affiliate links. I do not see the source for the data upon which the graphics are based listed.

mattparcher• 16 years ago

I agree that there should be more explicit citation for this article.

The original source is IDC [1], who says the mobile phone market is:

  1. Nokia, 32.4%
  2. Samsung, 21.0%
  3. LG Electronics, 8.3%
  4. Apple, 4.1%
  5. R.I.M., 3.6%
  6. Others, 30.5%

The IDC press release is referenced by Horace Dediu in his first post on the matter [2]. A later post of his [3], is the one referenced by CNN, only linked from the chart images.

[1] http://www.idc.com/about/viewpressrelease.jsp?containerId=pr...

[2] http://www.asymco.com/2010/10/30/last-quarter-apple-gained-4...

[3] http://www.asymco.com/2010/10/29/iphone-share-of-all-phones-...

charlief• 16 years ago

It is underneath the charts: "Source: Asymco"

http://www.asymco.com/2010/09/21/can-android-change-the-prof...

brudgers2• 16 years ago

Asymco prepared the graphic, they did not collect the original data upon which it is based.

lotusleaf19872• 16 years ago

It might be Goldman Sachs. This chart from Business Insider from July, says the same thing but attributes the information to Goldman Sachs: http://www.businessinsider.com/you-cant-appreciate-how-compl...

sliverstorm2• 16 years ago

All this tells me is what I already knew- Apple products are priced with a very large profit margin included. They are the only ones who've been able to get away with it.

(I think it's safe to surmise that when one company is making 25x the profit as other manufacturers per device, it's not because they have figured out how to manufacture product more efficiently)

ptomato• 16 years ago

And yet, oddly, similar phones (see: android devices) are not priced significantly less.

baddox• 16 years ago

Exactly. Unless the hardware of an iPhone costs significantly less than, say, an Evo 4g or Touch Pro 2, there's no reason their profit margin would be any better. Of course, the whole pricing model is very obfuscated at least with US carriers due to contracts, required internet plans, etc.

sliverstorm2• 16 years ago

But do android device makers get the same cut from the carrier as Apple? Notice an unlocked iPhone 4 is ~$750, and Apple probably gets a little more out of it when they sell with a contract (otherwise wouldn't they just sell unlocked phones with no particular carrier association?)

cletus• 16 years ago

Excellent point.

The power of Apple's supply chain cannot be underestimated. They are constantly looking at new materials, locking up global supply of key components and constantly reinventing their form factors.

The problem with Android is that it isn't a brand. It's an idea. Motorola Android phones work completely differently to HTC Android phones. Google has succeeded in what they wanted to achieve: to commoditize the phone OS. Manufacturers are playing along and their phones too are, basically, commodities. There is no "Android experience" like there is an "iPhone experience" so they're all simply competing on price.

The other problem with the Android manufacturers is they make the same two mistakes pretty much everyone but Apple makes: they ask customers what they want and they use "shotgun marketing".

Asking customers what they want (eg focus groups) is a terrible idea with an horrendous track record.

Shotgun marketing is basically throwing everything at the market and hoping something sticks. That's why there are so many models and they pack in as many features as they can (marketers like bullet point lists). Apple is the only one who seems to have a coherent and consistent user experience.

JofArnold6• 16 years ago

Additionally, note that in effect Apple decides the price of smartphones. Must hurt being a competitor who's making a quality product and knowing you need to price similar to them in order for your customers to understand what level of quality they are buying. Too high and people will buy an iPhone, too low and people may feel you are lower quality.

ugh• 16 years ago

Some of the difference – not sure how much exactly – can certainly be explained with the fact that Apple is only selling smart phones. That’s why RIM (4% vs 14%) and and HTC (2% vs 5%) also have less market share than profit share.

Nokia sells massive amounts of cheap dumb phones and has correspondingly less profit than market share (15% vs 32%). (To make the same profit Apple makes with a $750 iPhone – assuming a 30 percent margin in both cases – Nokia has to sell ten $75 phones. If that were the only thing they are selling Nokia would need ten times the market share of Apple to have the same profit share.)

Herring• 16 years ago

I am shocked the copy-everything-apple-does-a-year-late-and-compete-on-price business model isn't very profitable.

tjogin• 16 years ago

I think it's because those who try to do that don't realize the full spectrum of things that Apple does right, seeing only the most superficial fraction of it.

mjfern• 16 years ago

Apple's profitability with its iPhone business is partly a function of its vertical integration and its industry power. Consider that Apple controls the key inputs for the iPhone (e.g., the A4 system on a chip and iOS), owns important distribution channels (e.g., the Apple Stores), and exercises substantial power over complements (e.g., AT&T and apps via the App Store). In short, Apple creates substantial customer value with the iPhone, and due to its vertical integration and industry power is able to appropriate much of the value that is created (in the form of profits).

A second key reason for its profitability is Apple's low cost structure. With economies of scale and scope (consider that many components are shared across the iPod, iPhone, iPad, etc), learning curve advantages, relationships with key suppliers (Samsung) and contractors (Foxconn), and so on, Apple is able to drive down the unit costs of the iPhone and thus drive up its margins.

sbaqai• 16 years ago

I think this is a great example of Apple's "design strategy" being completely end-to-end.

They don't just focus on the tiniest details of industrial design; the aluminum chassis, the battery layout, the screws, friction coefficients on the trackpad, etc.. they have also designed their entire supply chain with the same attention to detail.

There was a post on HN a while ago about Apple's patent on a new headphone jack design - they redesigned what is pretty much a commoditized component (and never seen by the customer), to unlock more value in the form of greater maneuverability and internal space. I imagine the supply chain is also very commoditized, and Apple is the kind of company to take that process apart and refine it in the same way, to unlock value in the form of greater margins.

EDIT: Another area where their attention to detail is apparent is their manufacturing tolerances. They've pretty much perfected the art of physically manufacturing precision components. I've not been able to find another product, luxury or otherwise, that comes close to the fit and finish of Apple's devices - and thats including things like rolexes, ferraris, etc.

lotusleaf19872• 16 years ago

To add another example of Apple's details of industrial design, Apple makes two keyboards from the space they stamp out for the iMac's screen. Apple is very efficient.

ZeroGravitas2• 16 years ago

Apple doesn't "control" the A4 in any way they didn't "control" all the other Samsung chips they've bought and put Apple logos on.

They've now bought the design team that worked with Samsung on it, so we might see something interesting come out of that, but it's not the A4.

The rest of your post is entirely reasonable so it's a shame to lead off with a regularly debunked misconception.

It is however fun to speculate about why Apple puts so much effort into misleading people about the provenance of this fairly standard chip. It's clearly worked on some people, but what have they gained from this deception?

YooLi2• 16 years ago

Apple has said barely anything about A4. All the 'misleading' and 'deception' you mention comes from people speculating about what A4 is and isn't.

flgb• 16 years ago

People focus on Steve Jobs and Apple's design and marketing prowess. However, Tim Cook and Apple's supply chain management and operating excellence is just as important a part of their success.

guynamedloren• 16 years ago

This dead-simple analysis just goes to show you that market share is not nearly as important as so many make it out to be.

wouterinho• 16 years ago

Does this include Apple's revenue share deals with the operators or is it just phone sales?

JofArnold6• 16 years ago

This is my biggest question (and I'd love thoughts from HN people on it); if Android is mostly seen on handsets with very small margins that compete on price with almost identical features... who's paying for the R&D to keep up with Apple's innovations?

That question assumes that innovation is important in the smartphone sector. That may not be the case I guess.

I'm just trying to understand the end situation as best I can as like a number of startups our future heavily depends on smartphones.

aditya423• 16 years ago

Innovation is always important. The iPhone was innovative. iOS was innovative. Without those two, we wouldn't be having this discussion. We would still be using Nokias and Blackberries, or Android phones which would be like Blackberries -- not the iPhone.

As far as paying for R&D goes, how much does it take to replicate something? I'd say a fraction of the cost since you already have the product in front of you. All you need to do is duplicate it.

DrJokepu• 16 years ago

And that's exactly where the much hated patents (software or otherwise) would have a role, in my opinion; protecting hard-earned innovation. That's what they're supposed achieve, but due to the completely broken patent system, they're only good for "patent trolling".

ergo984• 16 years ago

Apple is responsible for shockingly little of the innovation in the smartphone field.

They didn't create their processor (though they managed to brand it and fool a lot of people for a while). They didn't create the GPU.

They didn't create the "Retina display" or their memory or their touchscreen sensor.

They are a software company that other companies -- like LG and Samsung -- supply with hardware.

The electronics market has traditionally been a very low margin industry (which is good for consumers). Apple has managed a pretty remarkable game of finding a very profitable niche and exploiting it as it exploded, with them in a leadership position, however it is not sustainable, which Apple realizes.

And it is simply perverse seeing people actually bragging on behalf of Apple about the fact that they are rolling in cash.

Hoff• 16 years ago

Then why not connect all those thoughts together? If it was so easy and if the hardware was so widely available and if the stuff here is a commodity and if user interface design and fit and finish was so easy, then why is Apple the bunch that is rolling in cash, and not looking like roadkill?

From what I've encountered with many of the low-margin commodity products, various manufacturers reach the "it works and meets our minimal specs, ship it" stage, and we get lids and covers and doors and other pieces that don't fit or quickly break and fall off, software and firmware incompatibility or crashes, fuzzy displays, sloppy switch mechanisms, user interfaces that are somewhere between truly bizarre and purely inscrutable, and related, well, dreck.

And for the consumers, a low-margin business means plug-compatible race-to-the-bottom no-name interchangeable and irrelevant product vendors, too.

Sure. There's a market for dreck. But as you've noticed, it doesn't pay well.

twitter_v2• 16 years ago

I have to disagree with your points above, Apple create stylish / iconic user friendly products, built to last, which will reflect in the price from a consumer point of view. Where the likes of Dell, Sony, LG, Samsung and the rest build Laptops and PC's to compete in a very competitive & affordable price range set by millions of retailers world wide, whom created a price war amongst themselves. A company does not need to own or create all of their IP in order to be successful or ask a higher MSRP, they just need to distance themselves from their competition and create a buzz, which Apple have done remarkably well.

I see Apple as a type of Fashion brand or a designer - look at the handbag market for instance, why do they range from $10 -$10,000 if they do the exact same thing and majority of the time they're made from near enough from the same materials and on average cost the same to make.

Regarding your last point "And it is simply perverse seeing people actually bragging on behalf of Apple about the fact that they are rolling in cash." I find it quite amusing to see how many people are so unhappy about the success Apple have made, when they really should be pointing their anger to laptop manufactures that are responsible for consumers spending huge sums of money constantly replacing or updating poorly built products that only last 12 months before they start cooking themselves!

JofArnold6• 16 years ago

I was actually musing on this very point in the pub earlier, having re-read an article on Apple's novel-ish approach to the SIM card (i.e., not having one) and what that means from a business perspective.

What people seem to gloss over is that Apple's major innovations come more from (or as much from) business revolutions than from hardware:

- iTunes: re-invented MP3 distribution (it was even DRM'd at first, remember)

- iPhone: screw you, carriers, it's going down like this from now on

- iOS: we've got any app you can ever imagine - our devices will make you happy.

They also innovate by knowing what their customers truly want:

- Do you really want a keyboard on that phone? Wouldn't you prefer it thinner?

- Do you really need a CD drive with that laptop? Wouldn't you prefer a bigger battery and thinner?

- Do you really need that much RAM and CPU when apps instant-resume and you have a Flash system drive?

Plus, they innovate in manufacturing (unibody, advanced castings and extrusions, laser-machining) and marketing and sales (direct-to-consumer, store layouts, try-all-you-like).

Ok, so some of the approaches they use are bought/licensed (processors, casting tech, hardening tech) and many are out-sourced. But I really don't see anyone else in the public light who are pushing hard at so many new approaches right now. How many other companies are filing so many patents in everything from chip design to UI to manufacturing methods?

So... I think I basically disagree with you :P

aditya423• 16 years ago

So you're saying Apple hasn't innovated as much as we think.

1. They didn't create their processor: I admit, I'm not really into the hardware side of Apple, but really? http://en.wikipedia.org/wiki/Apple_A4 credits Apple as the designer of the processor (and Samsung as the manufacturer). Yes, they collaborated with another company (Samsung) and bought a third one (Instrinsity) to own the talent, but that's not the point. That's like saying EA didn't make its games because they bought other studios. Apple wanted to make their own processor, so it collaborated with the companies it couldn't/didn't want to buy, and bought the companies it could. The result is that A4 has an 'Apple' name and only Apple gets to use it. What is "though they managed to brand it" supposed to mean anyway?

2. By create, I assume you mean 'designed'. Nobody will argue that Apple didn't manufacture it. So can you tell me who did design the first retina display? And which phone first used it? (I understand that 'retina display' is just a branding of a very high resolution display, but for the sake of brevity, we'll call it 'retina display').

3. Yes, they're a software company. Yes, Samsung and LG are suppliers of their hardware. But Apple is the one putting those components together in a tight and neat little package that looks beautiful on the outside, and is powerful on the inside. Look at Samsung and LGs own phones. Why are losing share if they're so good at what they do? Apple is the architect, Samsung/LG the workers. Who deserves the credit?

---

Apple did what it does best - sell you a product. Not parts; product. Apple always sells you a product. So instead of looking at each part and saying that Apple hasn't innovated there, look at the product as a whole and see what Apple has created that no-one else did.

xsmasher• 16 years ago

Apple didn't invent all of the tech they use, but they drove its adoption.

Apple changed the "face" of smartphones; this is what Android looked like before the iPhone came along: http://gizmodo.com/334909/google-android-prototype-in-the-wi...

Styluses and resistive touchscreens were resigned to the scrap heap soon after.

Apple didn't invent multi-touch either, but they moved gestures from a futuristic novelty in Minority report and Black & White into something that regular people use every day. Swiping and pinching have entered our UI lexicon with amazing speed.

IPhone: 4% of market, 50% of profit

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