Addressing Concerns over Apple’s iPhone Growth

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There is no single question I get more from contacts on Wall St. than those that center on how long Apple can keep growing. Knowing Apple derives a great deal of its revenue from the health of the iPhone business, the question of, “How much higher can the iPhone grow?” is fundamental.

Interestingly, Apple added a disclosure to their latest 10-Q for the June quarter regarding risks to results:

“Further, the Company generates a majority of its net sales from a single product and a decline in demand for that product could significantly impact quarterly net sales.”

Clearly, Apple understands what is at stake. However, I also believe they understand there is still headroom to grow iPhone unit sales. Here are some of the fundamentals.

Upgrades: Apple is giving us the percentage of the base who upgraded for a reason. Tim Cook also used a third party statistic about iPhone repurchase intention on the latest analysts call saying 86% of iPhone owners plan to purchase another one. He also compared that with a 50% repurchase intention of the next highest brand measure, which would have been Samsung. The point is, iPhone owners buy more iPhones (the number is in reality higher than 86%) and every upgrade cycle for an Android user is an opportunity for another brand.

I believe the iPhone global installed base has passed 450m units now so Apple still has roughly 330 million (or more) iPhones to sell to their existing customers. It is likely that, by the end of 2015, 40-50% of the iPhone base will have upgraded given current trajectory. We have country by country details from our survey work where we ask about specific device ownership. In the survey, we ask very specific smartphone model ownership questions as well. The iPhone 5s remains the largest owned by a significant margin, highlighting the strong opportunity for upgrading.

Android Switching: This is one of the dynamics I don’t believe is fully appreciated or internalized regarding what is happening globally in the smartphone market. Android is sick and has been for quite some time. The extent of this sickness is not understood but it has been obvious for those who can see it. In 2012, I defended Apple rigorously against investors, and some prominent VCs, who felt Samsung was too strong a force to be reckoned with. I explained why Samsung’s dominance was only temporary. A great deal of my logic was centered around the dynamics of Android itself, which I predicted would have broad sweeping ASP impact on the Android vendor landscape. The clear takeaway is not a single Android vendor will ever be safe. I’m fond of saying when you ship someone else’s software, you are only as a good as your competitor’s lowest price. This makes it very difficult for these companies to do primary R&D and innovate.

The dynamics of a mature smartphone market are consumers internalize and self-select what they want and what they don’t want. It takes time for a market to mature and, when it does, you generally see a more refined set of desires and feature sets. Often, this takes experimentation. Lower cost Android smartphones helped get more consumers into the market of smartphones and, with each generation they owned, they began to refine what they wanted and didn’t want based on their unique needs and desires. It turns out that, in many cases, Android isn’t panning out for them. Android forces the hardware landscape down in cost, which has a broad impact on components and features. Apple does not have to play this game and can innovate on feature, function, user experience, etc. This sets them apart once the core needs, wants, and desires of consumers are refined. This is one of the fundamental dynamics driving Android switching and how mature markets work, evolve, and ultimately operate. This must be internalized to understand why it will continue in favor of Apple in many markets. While helpful (but not definitive on consumer decision making), we chart consideration to purchase by smartphone brand. I’ve lumped the broader (over 30) countries we survey into regions. Notice Apple’s lead in purchase consideration in many of them.

Screen Shot 2015-08-06 at 8.51.52 AM

I make this point not to state this high purchase consideration will lead to more iPhone sales. Only that Apple has a captive audience to sell to. This is why we believe they are well positioned as the market continues to mature and consumers refine their interests.

China: Lastly, we have to talk about China. China remains Apple’s single largest region for growth prospects. The ceiling for iPhone sales in the US is close. Apple is creeping toward 50% share of smartphones in use in the US. Yet, I’d argue the sheer desire to own an iPhone is stronger in China than in the US. Apple has, currently, only 13% share of active smartphones in use in China. As middle-class and overall household income in China rises, numbers like 30% of the China smartphone installed base consisting of iPhones aren’t out of the question.

We do primary research in China and one study we run is a quick survey asking respondents what OS they use for their primary smartphone. As you can see from my chart, iOS continues to grow and interestingly for the first time, we saw the percentage of respondents who said Android is their primary smartphone OS decline. This was from our latest Q2 survey of over 2,000 people in China.

Screen Shot 2015-08-09 at 9.03.25 PM

However, there are concerns over the Chinese economy. I personally believe they are over blown, but I understand the concern. But let’s look at a case point for reference.

Luxury brand Louis Vuitton reported strong sales including in China, despite the stock market and economic issues in the region. While some brands are clearly being hurt and the article mentions Burberry, it is not doom and gloom for all. I’d argue smartphones are more central, personal, and needed and Apple remains well positioned in the status and aspiration area for Chinese consumers to have an impact on iPhone sales in China. Alternately, many consumers in the rising middle class are not as impacted by the stock market as many would believe. Those who are have enough money that, while it hurts, they still have plenty of disposable income.

A last point I’ll make is that we continue to see iPhone ownership rise among those in much lower income tiers in China. This is a dynamic many can not fully appreciate. However, it is important to understand pooled household income to acquire things is common in China. With the gifting dynamic so high, we notice even in lower-income households they pool their income to buy an iPhone for a younger upwardly mobile member of the Chinese household.

What’s happening with Apple in China is truly remarkable and hard to internalize for many Western minded thinkers. Apple’s ceiling in China is high and their position in the Chinese market will continue to surprise many. You can’t build these surprises into the stock price, particularly as the Chinese market is so misunderstood by many western minded individuals. We can only hope that, while most large institutional investors can’t understand what is happening with Apple in China, they will learn to not bet against it, or Apple in general for that matter.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

202 thoughts on “Addressing Concerns over Apple’s iPhone Growth”

  1. “when you ship someone else’s software, you are only as a good as your competitor’s lowest price”



    1. In the market for computing devices, the only effective avenue for product differentiation is the OS. If you don’t have your own OS, you don’t offer a unique product, and the only dimension you can compete in is price. — Welcome to the race to the bottom.

      1. If that were true, everyone would be buying an Alcatel Idol 3 right now, all review sites are pretty much unanimous in naming it the best value phone (or close to) relative to the competition, and an excellent phone in the absolute ( ).
        Many people do still care for features (size, camera, battery, performance, storage, …), brand (implies cachet, quality & support ?), and design.

        1. “If that were true, everyone would be buying an Alcatel Idol 3 right now”

          That is pretty much what is happening, the majority of Android sales are cheaper good enough smartphones, like the Alcatel, or ASUS ZenFone, or Huawei P8, and lots more. They’re all good devices at good prices (and all priced very closely to each other).

          1. Silly me, I thought Samsung was by far the biggest Android OEM, and the high end Galaxy line by far the biggest Android model.

          2. Sales of cheaper good enough Android devices are far, far larger than sales of high end Android devices. The good enough smartphones are the bulk of Android sales. Are you trying to say Samsung’s Galaxy line makes up the bulk of Android device sales? That would seem impossible given the ASP of Android phones being around that $250 mark, which is also the price of the good enough phones I mentioned.

          3. Do the Maths. If Android based phones outsell iPhones 8 to 1, and as you claim they are mostly Gakaxy Series, shouldn’t Samsung be making Apple level sums, or even surpassing them?

          4. Before maths, let’s start with logics: nowhere do I say what you seem to have understood from my post ?

          5. the OP said most sales on the Android side were cheap phones, and you countered that the Galaxy line was the biggest. I am merely pointing out that if the high end Galaxy line was the biggest android model ,and there are billions of Android handsets sold, that Samsung would be literally swimming in money and even make more money than Apple. What am I not getting?

      2. That is a gross generalization, missing other important sources of differentiation, to name a few:
        – Hardware (displays, processors, front camera, back camera, sensors, actuators, etc.)
        – Design (CMF – color materials finish, shape, form factor…)
        – Associated services (enterprise, security, maintenance, games, entertainment, etc.)
        – End-market specialization (specific functionalities valued for different market niches)

        The OS is only one layer (important, but not the only one), companies can differentiate in any other layer.

        Of course price is an important way to “differentiate” as well…

        1. Excellent counterpoint. In the case of Samsung, their differentiators come from the hardware layer. In my opinion, they are the best equipped to provide the best Android experience.

        2. Sort of. The point being that unless you are the actual inventor/owner of the hardware used to differentiate, then you are at risk of being waylaid by someone willing to sell the same thing cheaper. And that is typically what we find, not just in the Android universe, but in hardware overall. At that point it is the OS that is the only area left of differentiation. Samsung can claim many hardware features on par or even superior to iPhone. But they can’t claim the Apple ecosystem or OS features. Similar, maybe, but that is differentiation.

          Sure some hardware makers will try to keep certain specs different so they can say “See? We aren’t exactly the same as the competition”. But even when it was regular feature phones, Motorola, for example, had to sell their Verizon Razrs with a different OS than thei ATT Razrs or T-Mobile Razrs. (It was quite infuriating as a Razr user switching carriers).


          1. Everything can be commoditized. Hardware, as you mention, but also software can be commoditized (Operating System features or mobile apps). Many features that were once a differentiator for Android or iOS or Windows are now common across all platforms. This is why Apple, Google and Microsoft keep upgrading their Operating Systems, because they too can become commoditized unless the keep investing in new technology and features.

            The risk of someone producing the same but cheaper is the risk that comes with competition. So companies need to improve their hardware components to avoid that commoditization. So in that sense the Android ecosystem does have more competition, and therefore more incentives to differentiate and provide more cost-effective solutions.

            Even in the more standardized the PC industry, where hardware was also standardized to a certain extent by Intel, which dictated a common x86 microprocessor, chipset and architecture, PC manufacturers managed to find ways to differentiate.

            The smartphone industry is less standardized at the hardware level than the PC industry is, so there is more room for differentiation, as there is not a single company that plays Intel’s role. Apple, Qualcomm, Samsung and others define their processors and architectures around the processor. The only common part is ARM’s instruction set.

            So companies that have made the effort to develop or acquire valuable technology IP are rewarded as they can use it to differentiate their smartphones from the competition. This is one of the reasons why Samsung has done well while HTC has struggled.

            Saying that “OS that is the only area left of differentiation” is essentially saying that:
            – Industrial Designers are irrelevant
            – Electrical Engineers are irrelevant
            – Material Scientists are irrelevant
            – Marketing professionals are irrelevant
            – Business Developers are irrelevant
            – Operations Professionals are irrelevant

            I don’t think you or anyone here would agree with those statements.

          2. It’s not that you are wrong. That’s just not the point. HTC is dependent on Google to keep Android competitive (I don’t think they even make Windows phones any more, but I could be wrong). And because the Android OEM ecosystem is competing on price none of them have the resources to develop things with processors that Apple is doing. So everyone is using the same available parts, just like the PC hardware makers. So:

            “PC manufacturers managed to find ways to differentiate.” in reality proves this point because no differentiation they could develop was sustainable for much more than a New York minute. Why do you think so many are ditching and tanking in the PC market?


          3. HTC failed to make any significant investment in real original technology over the last decade. They’re essentially an assembler with some design and marketing capabilities. So the only thing they can compete is price, or a bit on marketing and design, which are both expensive and not very defensible in the long run.

            Samsung and LG, to the contrary, have spent billions of dollars in basic R&D, patents (both technology and design), manufacturing technology, etc. Because of that, they can differentiate at the hardware level, unlike HTC.

            Samsung is now the #1 filer of patents in the USA and Europe:

            Everyone is not using the same parts available, because many important parts are not commoditized (displays, cameras, etc.). For instance, you can only find high-quality OLED displays in Samsung phones. Apple still relies on older LCD technology, and the difference in quality is obvious to the eye. Same with HTC.

            The point is, you either invest in defensible differentiators like cutting-edge technology (as Samsung does) or you invest in lean low-cost processes (as Lenovo does). Both companies are doing well. HTC has done neither so it can’t compete, there is nothing special as brand can only take you that far.

          4. I agree about the defensible differentiators (when I said “unless you are the actual inventor/owner of the hardware used to differentiate”) which is where Samsung has mostly. At the same time Samsung is being hammered in just about every level they compete in, by generic Android in the low-mid range and by Apple in the high end.

            It isn’t just about defensible differentiators, but differentiators that, well, make a difference. Most of the important parts exist at a commoditized level from someone somewhere, which makes the differentiated versions from makers like Samsung actually less relevant, which is part of why Samsung is having such a hard time lately. All of Samsung’s hardware differentiators are either easily replicable at a “close enough” level, or Samsung supplies them to other makers, making Samsung their own worst enemy.

            And all that is why Samsung continues to invest in and develop Tizen, as well as their own ecosystem efforts such as in security and contactless payments. I would think they need to get up to speed sooner rather than later before their position gets irrecoverable. Even Xiaomi sees hardware only going so far in differentiation, which is why they put effort on software, as well.

            IMHO. I don’t actually gather the data, I just read a lot. So my conclusions are only as good as the data people like Techpinions provide.

            In theory, all you say is true enough. In reality, most of the Android makers are like HTC. Samsung and, to a lessor extent, LG are the exceptions (In terms of having more control over the hardware than most makers) and they are struggling, too. So what is actually happening in the Android OEM scene is exactly what Ben says. “when you ship someone else’s software, you are only as a good as your competitor’s lowest price”


          5. What Ben says is a gross generalization as I explained. It might make for a tweetable quote, but it’s a false statement.

            There are less ways to differentiate when companies use the same OS (quite obvious), but there are several ways to do so. One has to suffer a severe lack of imagination to not being able to find ways to differentiate (design, hardware, services, etc.). Again, not only hardware.

            There are over 1,000 OEMs using Android, some of them are profitable and some are not. The ones that have some competitive advantages will survive, the ones that don’t won’t. Such is the nature of competition in the free market. So expect many more Android OEMs to go bankrupt while Android still does well. Barriers to entry are so low that a family in Shenzhen is able to enter the market in a matter or weeks.

            Btw, it’s not the OS per se, it’s the app ecosystem that makes it a powerful differentiator. Even if Samsung makes Tizen as powerful as Android, it cannot create the thriving app and content ecosystem of Android. So Tizen will likely continue being an OS for other devices, not smarphones.

          6. You call it a gross generalization, I say its being mildly observant. It doesn’t take a rocket surgeon to see what is happening in the Android OEM landscape. “Some are profitable” is a gross exaggeration. All these things you say can happen simply aren’t, just as they didn’t for Windows PC OEMs.


          7. There were PC OEMs that made a lot of money in the PC industry (HP, Dell). Profits = Margins x Volumes. Even if margins are low, companies can make lots of profits with market share. I know many “Dellionaires” in Austin who retired in their 40s.

            And the PC industry in the 90s was much more competitive as also most hardware were standardized boxes too, Intel dictated their x86 processors, chipsets and mother board architecture (and sucked most profits), making it much harder for OEMs to differentiate at the hardware level. There is no Intel in the smartphone industry, so hardware differentiation is much easier. Design is also much more important as desktop PCs were mainly boxes and didn’t have to fit in a pocket or in our hands.

          8. Dell’s differentiation wasn’t hardware, though. It was their “just-in-time” assembly/manufacturing. They out Gatewayed Gateway, which also wasn’t a hardware differentiator. Everyone one else was tops until… hardware was no longer the differentiator and got co-opted by the next cheaper thing.

            That’s all I got left in me. I opt out. You win!

            Joe (thanks for the civil interchange, BTW. Refreshing.)

          9. I didn’t say that Dell differentiation came from hardware, read my post before replying otherwise no real dialogue occurs. A civil dialogue includes building on each other’s opinions, not attacking straw men.

            Dell is an example of how a company can be profitable in a highly standardized market such as the PC industry, where Microsoft standardized software and Intel standardized hardware. Even when those two layers were standardized some companies still managed to compete and succeed based on services, design, operations, e-commerce, etc.
            In the smartphone industry there is more room to differentiate than in the PC industry, as the hardware is not (yet) standardized.

            I kept my postings very civil, adding supporting data when necessary. Not interested in “winning”, just pointing out that the OS is not the only way to differentiate.

            Designers, business developers, marketers, anthropologists, electrical engineers, material scientists… are not irrelevant and do help smartphones companies differentiate.

          10. Ben’s point is that you can’t truly differentiate as you all run the same software which is why people need the hardware. All the examples you have, lasted briefly because some one else using the same software eventually damaged their advantage and they fell into trouble. You are scathing towards HTC, however the fact is that the advantage Samsung had is because they have other businesses to fall back on, whilst HTC as a little company had no fall back position. Samsung is now relying on supplying chips for smartphones, what happens if the smartphone market slows down? Which division will come to the rescue?

          11. After a good night’s sleep and on my second cup of coffee, I’ll give it a go one more time, because, why not? Right now I care, but I can’t guarantee still caring in 15 minutes! 😛 Even though we are repeating ourselves now. We obviously are looking at the same data but coming to two opposite conclusions.

            To me Dell proves Ben’s point. There were many low cost PC suppliers before Dell, such as Gateway. Dell just, as I pointed out, out Gateway’d Gateway. Dell was the “competitor’s lowest price”. And by and large Dell maintained their position by maintaining lowest prices. Whether or not they were profitable really isn’t the point and isn’t even mentioned in my quote. Dell’s _system_ (not the hardware, which was the focus of the discussion at the moment)) was Dell’s differentiation. Yes. You just jumped to page five on me, without warning, while I was still on page two. No worries. Dell’s differentiation was still price centered.

            To me the competition of the PC in the 90s also proves my point. No matter how fast a computer someone could make, someone else could make the same one cheaper. Profitable or not, it was a huge race to the bottom. Innovation depended largely on the parts suppliers, less so on the assemblers.

            And, Jan I think it was, (yes, here on Techpinions) also echoed your and my point about suppliers being where the money is, not in handsets. I don’t consider that a differentiator. I consider that a different business.

            And I was being quite sincere in my appreciation for the civil interchange, especially in disagreement. You’ve been around the internet long enough, I bet, to know what I mean. And I was just having fun when I said “You win”. Of course, you don’t. 😛 But that’s neither here nor there. (Again, just having fun! What’s the point if not to have fun?)


          12. HTC was very profitable for 2 years and tanked once Samsung arrived, just as Samsung is tanking now the Chinese manufacturers have arrived and Xiaomi(last years stars) are already missing their forecast for this year. As has been clearly shown by actual financial results and statements by Lenovo (Motorola), Samsung, HTC, Qualcoms etc. The high end Android phone market has collapsed.

            Conversely Apple is having their best season and bargain priced Android phones are flying off the shelves, which proved that those who want Smart phones are either heading Apple’s way or buying cheap Android.

            So once again Ben’s point stands

          13. No, Ben’s point is an exaggeration. There are less ways to differentiate when you use the same OS (obviously) but there are ways (hardware, design, services, apps, etc.).

            What you’re saying, regardless of whether is true or not, does not prove Ben’s exaggeration.

            The problem with HTC is that they did not find any meaningful way to differentiate. They don’t own the OS (Google’s), they don’t own the hardware (Samsung’s, LG’s, Qualcomm’s,etc.). The only way they could differentiate was by targeting specific market niches. They chose audiophiles, and it turned out this was not a good enough segment for them.

            There are over 1,000 Android OEMs, and obviously there is no space for most of them to be profitable. So expect many more to leave the market, many more to enter the market as well. Only the ones that have significant competitive advantages will survive, as in any thriving free market with low barriers to entry. What you have in the Android market is extreme competition, which is good for consumers as it leads to products that provide more bang for the buck and cover all kind of price points and market needs.

            Apple is fine, they have their own iOS-compatible monopoly, but saying that the only way to differentiate is the OS is an exaggeration.

          14. Ben’s point is proved by facts on the ground. Your’s as nice as they sound are all theoretical. Your shinning example: Samsung disproves the point you are trying to use it to prove.

          15. Their profits have collapsed by a considerable margin and they specifically mention challenges in the phone segment and their financials show that their Semiconductor Division is now the bulk of their profits as opposed to the mobile unit which used to provide 75% + of their profits.

          16. Profits did collapse in 2014Q3 as Apple followed Samsung’s flagship strategy and launched a larger smartphone and a phablet. Before that, Samsung had the premium large smartphone market to themselves for a few years, that 75% share of profits was relatively transient and more due to Apple’s slow reaction (it took them three years to react and admit that consumers do prefer larger phones). Samsung is a very diversified company and it’s rare that its profits depend so much on a single division.

            Even with the increased competition, Samsung Mobile is still making billions of dollars in profits per year, and profits are stabilized again.
            And semiconductor profits jumped ~80% year on year.


            Of course there was no way that Samsung could keep its 35% market share in the smartphone market forever. This is the largest consumer electronics market ever and of course attracts lots of new entrants. Samsung will likely see its market share reduced and will have to keep focusing on some profitable segments and geographies (premium, US, Korea, etc.) and differentiating at the non-standardized layers (design, hardware… which is exactly what it’s already doing). In the meantime its semiconductor division will make a killing selling components to dozens of OEMs.

          17. Once you make a lot of irrelevant points. Most of those Samsung patents are pointless, as borne out in their court battles with Apple. They had to resort to trying to enforce FRAND patents against Apple and drew the ire of the EU, that was because they didn’t have enough relevant patents to fight Apple with. see how Nokia fared against Apple, they had relevant patents to go toe to toe with Apple.

            Samsung won over HTC, because they spent unprecedented amounts of money on marketing and their distribution networks and relationships with multiple carriers, including incentives to mobile phone carrier agents to sell their phones was used to great effect. HTC had the spotlight to themselves for a while, but once the big fish arrived, they were doomed

          18. The legal battles with Apple have little to do with Samsung’s patents. Samsung’s patents were not in UI design.

            Most Samsung patents are in core technology areas such as display technology (OLED, flexible, etc), flash memory, RAM, semiconductor process technology, batteries, sensors, IoT, etc.

            The patents are so relevant that Apple and other premium OEMs have to source their premium components from Samsung, as they offer the best quality.

            Samsung has the best smartphones displays in the market, the most advanced 14nm processor technology, and just produced the SSD with the highest capacity in the world. That’s not marketing but billions invested over decades in R&D and associated patents, and leading-edge ultraexpensive manufacturing robots and equipment.

            HTC can’t compete with that.

            If it was all marketing, Huawei, Sony or Microsoft could have secured a much larger market share in the premium smartphone market, as they have plenty of capital. But it’s very difficult for them to build a premium smartphone as they don’t control the key hardware so they can’t assure supply consistently. Only Apple has been able to do that with some components thanks to Tim Cook’s great supply chain management (which is key for a company that doesn’t own the core technologies that make a premium smartphone).

          19. there are suits and counter suits. If you are loaded you counter sue and everyone talks. If you are not loaded, you get rolled over. If Samsung had relevant patents like Nokia, they could have gone toe to toe with Apple

          20. Samsung doesn’t have to sue. Apple is effectively licensing Samsung patents with every order of components they make. High quality hardware is the result of many R&D efforst and patents associated. Apple knows quality and they pay billions every year for that quality and patents to Samsung.

          21. Apple now used Sharp displays for iPhones and madea $2 Billion investment in Sharp, so there you go.

            The iPhone 5s was a Samsung free zone and it still was the first 64bit phone and the best selling phone of all time until the iPhone 6.

            Sorry to burst your bubble, but Samsung is a commodity provider. Apple is in a unique position as the owner of the iphone, Samsung is just another semiconductor provider

          22. There is no bubble to burst. I think you might need to review the definition of a commodity.

            OLED displays or 14nm semiconductors are definitely not commodities, as there are only 1-2 companies in the world that are even able to produce them. Apple and other OEMs have to pay top dollar for those, or lag behind. One of the reasons Apple iPhones do not have superior OLED displays is because they’re too expensive and would reduce Apple’s profits. So they go with IPS which is a cheaper but inferior technology.

            In fact, some of the few companies that will make double digit profits from the smartphone market in the future are component providers.
            “There’s a war out there in the smartphone market. Some people will bleed to death, but those who make the money are the ones who sell the weapons. That’s the component makers.”

          23. Those are Pentile Amoled displays. Apple prides itself on its displays having the full RGB matrix.

            Samsung lost Apple’s business to TSMC and 14nm was the way to get it back. How would Samsung recoup it’s 14nm investment if it lost Apple’s business? Look at the sales of the S6? How many flag ship Android devices( the obvious destination of those chips) do you reckon will be sold? Considering the collapse of the Android high end? You bet it will be less than how many iPhones, iPads, iPod touches and Apple TV’s Apple will sell in a quarter. So Samsung needs Apple or their 14nm project will not make great headway as the market for it outside Apple minuscule and TSMC will be working to get to 14nm too.

            So, yes, sorry to burst your bubble.

          24. There are many companies interested in 14nm production process, not just Apple and Samsung Mobile division. Pretty much any smartphone OEM that wants to succeed in the premium smartphone or tablet segment is interested. Every major Chinese OEM is interested, as they have no doubt the more profitable premium segment in mind. Sony should be interested too but they try to irrationally avoid Samsung supplies (even if that puts them at a disadvantage) as they’re still hurting from all the markets they lost to Samsung. The question is how much all those OEMs are willing to pay. Apple is likely able and willing to pay more than any other OEM, so they will get the contracts as they are more profitable for Samsung.

            Again, Samsung needs Apple and Apple needs Samsung. Samsung would not sell processors to Apple if it was not profitable for them. You could also say that Apple is now essentially paying for the fabs that allowed Samsung Mobile to be the first smartphone provider in the world with 14nm processors. It all depends on where you want to focus on, and your POV. In essence, the deal is good for both. It’s the basis of trade. Apple has been trying to avoid Samsung as a supplier, but they just can’t. Samsung has the best technology in the world in most of the key areas that make a smartphone, so they’re hard to avoid if one wants to be competitive in the premium segment.

          25. To the contrary, Apple farmed out the manufacture of components because it is a commodity business. Let the Intels and Samsung’s fabricate chips, bear the costs of manufacture, the up and down cycles( remember Samsung lost Apples business last time which spurred them to make massive Capital expenditure to get to 14nm and spend Billions building factories in the U.S. To get Apple’s business back). Then Apple comes in and let’s them all race to outdo themselves offering their best technology at the cheapest prices. It is not a weakness, it is why they make huge profits. Apple co tangly switches suppliers on mobile and desktop: Samsung, Lg, Nvidia, AMD. Intel used to be the hard one to get to dance, but the development of the A series cust chips and the threat of ARM Maca has brought Intel in line.

            Coming back to the “differentation debate”, It is always forgotten that Apple did licence out their OS, because they thought they could differentiate on hardware and people went for the OSX clones which were cheaper and Apple’s business collapsed as a result. Which is why Steve Jobs fought court battles and revoked those licences.

            Again as the market had shown. People prefer cheaper Android phones to the so called superior hardware, just as cheaper PC’s out sell so called superior hardware. Only Apple’s margins are bullet proof , because they provide a unique experience (OSX and iOS) and anyone who wants that experience can only get it from them. Samsung on the other hand do not offer a singles unique in demand experience that you can’t get anywhere else

          26. Components are not a commodity business. They’re usually less of a commodity business than the OEM business. And they can be highly differentiated and profitable.

            In fact the most profitable company in the PC industry was the producer of microprocessors, Intel, with 30%+ operating margins (more than software and services providers!). And even the providers of other components that were more commoditized (RAM) managed to have higher margins than PC OEMs.


            The reason why Apple has not vertically integrated into components is not because there are no profits there, it’s because they cannot ensure the scale that will provide profits. TSMC and Samsung are able to invest in capital intensive leading edge fabs because they serve many OEMs, so they can spread the cost over billions of chips. Apple cannot provide that scale and therefore it would not be economically beneficial for them, while it is a good business for Samsung. However, it is a well known weakness, even Tim Cook has admitted that. One of the main headaches for Apple is to ensure they can get enough volumes of high quality components on time.

            Apple already suffered in the 1990s due to their lack of control over the microprocessor roadmap (first Motorola, then Intel) and other components. However semiconductors and other components are the hardest part to vertically integrate as Apple doesn’t have enough scale to spread the huge fixed costs, and they would have to get into the semiconductor merchant business (as Samsung does) to do so.

            Of course Apple tries to switch suppliers, this is the essence of multiple sourcing, a strategy that all companies follow to avoid being subject to supplier pricing power. This is not some kind of great show of Apple’s power, it is standard practice in procurement.

            As the smartphone market ends its fast growth phase, the war will intensify and profits will increase for component providers, as hundreds of OEMs look for ways to differentiate at the hardware level (they can’t do much at the OS level).

            Again, Ben is smart and knows that OS is not the only way to differentiate. Of course accurate nuanced messages do not make great tweetable quotes as

            What allows Apple to differentiate is not just the control of the OS, is the full vertical control from retail to microprocessor design (except components). The OS is just one part of that. Launching a smartphone with your own OS does not change profitability magically, 1) first the OS needs to be better than Android and iOS and 2) more importantly the app ecosystem needs to be better. It’s almost impossible at this point for a new OS to get ~1.5 billion apps as iOS and Android have.

            So what’s coming is a huge war as the smartphone market starts saturating, and the winners will be Apple, a few OEMs that manage to differentiate (via hardware, design, services, business model, operations, etc.) and key component suppliers like Samsung that will sell the weapons to Apple, Huawei, Lenovo and hundreds of OEMs to fight the war.

          27. So I guess those few Android OEMs that win will share the 8 percent profit in the industry that Apple doesn’t take?

          28. Yes.
            Except that there are no “profits in the industry” to be taken. This is a very misleading way of looking at an industry.

            If Apple was not in the smartphone industry and all OEMs were based on Android, that industry profit pool would be much smaller. There is intense competition in the Android camp, and that ensures that no OEM takes out-sized profits. Apple has created their profit pool by convincing consumers to pay for devices with very high margins (thru UI design, marketing, etc.) and locking them in with their ecosystem efforts (apps, content, accessories, etc.). Apple is able to extract much more money from its customers, as Apple has a near monopoly. Once a consumer has invested in the iOS ecosystem, he has no choice but to buy more devices from the only OEM that produces them: Apple. Apple can therefore demand a very high price (near-monopoly pricing), which has very little relation to the actual cost of the hardware or software. So those profits that Apple gets from its consumers are not there for the industry’s taking, but created by Apple’s monopolistic position in its sticky ecosystem. So Apple is not taking Android’s profits (Android OEMs would not be able to ask for those profits as there is intense competition in the Android ecosystem), it’s just profiting from its consumers who essentially once they are deep in the iOS ecosystem they have no choice of smartphone suppliers, only Apple. This is the genius of their business model and the source of their out-sized profitability.

            Industry profits can increase or decrease depending on many external variables also, including the commoditization or standardization of adjacent layers.

          29. Yes, for consumers deep in Apple’s ecosystem there is little/ no competition. That’s why all companies put a lot of effort in building their ecosystem, because they increase switching costs, removing competition.

          30. No, the point Ben made is that there is no other way to differentiate but by controlling the Operating System. Apple’s success does not prove that statement, it just shows that it is easier to differentiate when you own all the vertical chain, including the Operating System. Which is quite obvious.
            The difference is clear, and Ben’s statement is an exaggeration. He knows it too.

            I agree that owning the OS makes it easier to differentiate, if that’s what you believe, and not that the OS is the only way to differentiate.

          31. is it your contention that the Exynos series are more expensive or more advanced than the Apple A series chip? you realise it contains a reference off the shelf ARM core as opposed to the Apple chip and goes the cheap way of smaller higher clocked cored rather than achieving performance through mostly silicone which is a very expensive way to do things?

          32. I like how this has degenerated again into an Apple vs. Samsung discussion. Each company achieves performance the way the can. Apple can only do it via chip design, as they don’t own or control any fabs. Samsung can do it via manufacturing, as they own and control leading-edge fabs. Exynos is both more expensive and more advanced at the physical level than Apple’s processor. At the core design level, it is inferior as they just use ARM generic cores. Hence they have more room for improvement as it is rumored that they are now working on custom cores.

            My point is not Apple vs. Samsung whatever. It’s that the OS is not the only way to differentiate. Which is an obvious point that anyone with a business education understands. Just like engines are not the only way for automobiles to differentiate. In fact many car models and brands share the same engines, as is it does not make economic sense for the industry overall to create an engine for each model and brand.

          33. Regarding IHS. There is a reason so many so called analysts always get caught out by iPhone sales performance. They rely on hacks like IHS whoare analysis are absolutely bunkers. The complexity of a supply chain, and the market forces at work and dynamic conditions are not reflected in their simplistic and quite frankly useless analysis

          34. This topic is about smartphone sales. Ben’s point is regarding smartphone sales. In the smartphone world no Android OEM has been able to to do what Apple has done, which is to create a unique smartphone experience, that gives them great value and advantage over other OEM’s. It is a fact, Motorola (Droid), HTC and Samsung have all had their time in the sun, and exactly 2 years later (in line with smartphone upgrade cadence) have seen their smartphone profits/revenue/margins collapse. Apple on the other hand has been plain sailing. it is simply because Apple has differentiated itself from all other OEM, which is why they retain their customers/ profits/revenue/margins etc, because they successfully differentiated. If Apple did not own and control OS X/iOS, they would not own and control the App store, and would not be able to tightly and closely match the hardware to it and dictate the services that run on it, and hence would not be able to control the experience. That is the point Ben is making, which you don’t seem to get.

          35. Ben’s statement is clearly an exaggeration, he knows that (exaggerations get more clicks, views and generate more controversy).

            You should now that too, that’s how the media business works. Truthful nuanced statements are less polarizing and get ultimately less audience, which is the ultimate goal of media outlets and blogs.

            There are many other things that explain Apple success. Industrial design is one of them. Retail experience is another one. Apple differentiates through those as much or more than via iOS. Saying that the OS is the only way to differentiate is illogical and not supported by facts.

            If HTC margins collapsed, it’s because they failed to differentiate at any of those other layers. Samsung smartphone business had been profitable for 6 years and counting, so your 2 year cadence is just a made up construct.

          36. Feel free to disprove Ben by naming A Windows phone or Android OEM which is consistently maintaining and growing profitability and revenues in smartphone sales whilst running the same OS as their competitors

          37. Samsung (Android)

            I can also name a few OEMs that did have their own OS, and failed: Blackberry, Nokia, Samsung (Bada).

            As you can see having your own OS does not determine success or failure, it’s just one factor among many other.

            Theory disproved: The OS is not the only way to differentiate. Btw, Ben knows that, you are taking his click-bait tweetable quotations as a serious theory, which obviously is not.

          38. The Smartphone war is already on. Android is racing to the bottom, as is evidenced by the statements from the OEM. Apple is not in that fight as it has differentiated itself from Android, and is only available on 240 carriers world wide, there are over 700 carriers in the world and has enormous headroom to play with. Remember all those analysts that thought the ^ series would fail in China as they were too expensive? We also heard for years that Mac prices will come down because of the PC market saturating, however their Asp has gone up not down, and the iPhones Asp have also gone up even though the analysts tell us the high end phone market has saturated. The market hasn’t yet saturated, its just that the Android high end has collapsed as any half decent analyst would have foreseen. It happened in the PC world, every OEM races to differentiate by hardware, only to learn that the vast majority of consumers only care about the OS, and the cheapest way to buy into the OS, so they can run their software and enjoy the services that the OS facilitates. Hence the inevitable race to the bottom and razor margins

          39. The vast majority of consumers don’t care about the OS, they care about what allows them to fulfill their jobs to be done. And that is a combination of hardware, OS, and particularly software applications.

            The power of iOS is not the OS itself, it’s the app store. Most people couldn’t care less about the minor differences between Android and iOS, as they’re both offering the same features nowadays.

            And one of the key jobs to be done is feeling better about themselves. Apple is in the psychology business, just like Louis Vuitton or BMW. They allow people to feel better about themselves by paying more for their differentiated products. That’s why they like to control also the retail experience, as Louis Vuitton does. It helps them justify the big markups they put on their computing devices which are essentially made of the same parts as premium Android devices.

          40. So how do you control the experience when you do not control the OS, the layer that bridges the hardware and the software and services that run on it? Operating System? Get it?

          41. The Operating System has NOTHING to so with the retail store experience or the physical design, color or materials of the devices, or the customer service experience, or the warranty, or the maintenance, or the display pannels, or the quality of the CMOS image sensor.

            If you can’t see that the OS is unrelated there is nothing I can say to help you understand it.

            One last time: the Operating System is not the only way to differentiate.

            Ben knows that, you… I’m not so sure.

          42. The reason why Apple has not vertically integrated into components is not because there are no profits there, it’s because they cannot ensure the scale that will provide profits

            I think it’s because they have no desire to compete in a component/commodity business.

            They want to build “great” products for consumers.

            They are not looking to make components for their competitors.

            They take ARM processor designs, tweak them to their own specs, and then have Samsung or others fab them. Why would Apple ever want to build their own ARM fab plant? Makes no business sense if your business has no plan to sell ARM chips on the open market.

            What if Apple wants to switch to Intel chips in 2-3 years? Then they would be stupid to build an ARM fab now.

          43. First, components are not necessarily commodities, some components are highly differentiated. Samsung, Sony and Intel are making big margins on some of their components. Second, even commodities can be very profitable (when demand exceeds supply and there are high barriers to entry).
            Third, you’re saying exactly what I was saying. The leading-edge non-commoditized semiconductor business requires to be profitable a scale that Apple devices only cannot provide. If Apple integrates that, they either do it losing money, or they have to open up and sell chips to other companies. Both prospects do not seem appealing. So they decided giving up a bit of control in their supply was a lesser evil.

          44. You are making a theoretical argument that flies in the face of reality. In the PC, Smartphone and Tablet markets, every OEM apart from Apple, had raced to the bottom and are on razor thin margins. Samsung’s profits in that sector have collapsed, showing the exact trend HTC’s mobile phone related profits showed before they bottomed out.

            You make some good hypothetical points, but they fly in the face of reality. The point still stand, you can’t differentiate on hardware unless you run your own software

          45. Samsung’ s margins in the segment where they compete with Apple (premium smartphones) are almost as high as Apple’s. Double-digits. That’s hardly razor thin margins. And that’s because Samsung is differentiated via superior hardware (superior to Apple’s in many cases, that’s why Apple has to come back to Samsung to get its components).

            The margins of the overall Mobile division are much lower, as Samsung sells many lower-end phones. Those are highly undifferentiated.

            “you can’t differentiate on hardware unless you run your own software” This is incorrect, and not even logical (e.g. display technology has little to do with the OS)

          46. ” Apple has to come back to Samsung to get its components”

            Good thing for Samsung, then. They certainly aren’t doing well against Apple head-to-head. They may have margins, but they still aren’t pulling in near the revenue nor profit they once did.


          47. That’s true, Samsung created the phablet market and had it to themselves for a few years, until Apple admitted that consumers do want larger smartphones and decided to do the same. So now Apple is taking their market share in the larger premium smartphone segment.

          48. A larger screen iPhone was always going to happen Ray. Apple doesn’t care about being first, they care about delivering a specific kind of experience and value, and so they wait until that can be done.

          49. When was it going to happen? Apple was not aware of the consumer’s preference for larger smartphones until Android produced those and started selling millions of them. In fact it became the largest growing category. Only then, when it was clear there was market demand, Apple reacted.

            The point is that Apple remained in small form factors (they had invented the modern smartphone, so how could any other company dictate its evolution?). Whether it was lack of consumer insights or stubbornness is anyone’s guess. Their theory was that smartphones were to be used one-handed. However, many consumers preferred to make a trade-off and use their smartphones with two hands if that enable larger displays for video consumption or web browsing.

            In these internal slides from Apple in 2013 it is pretty obvious that they were not waiting to deliver a specific experience, but they were reacting to consumers who were defecting to larger Android smartphones:

            “Consumers want what we don’t have” – Apple’s conclusion


          50. Apple routinely builds and tests different form factors, features, technologies, and only ships when the product/market are ready. So Apple appears late on many fronts, from larger screen iPhones to NFC, and more. But don’t let that fool you into thinking Apple had no plans whatsoever re: larger screen iPhones until Samsung showed them the light, hallelujah! In fact, Apple’s timing on shipping larger screen iPhones was pretty much perfect.

            “Whether it was lack of consumer insights or stubbornness is anyone’s guess.”

            Sure, that seems plausible, the most successful consumer tech company in the history of the world has a lack of consumer insights. Hmm.

          51. Yes, Apple does not know everything, as Procter and Gamble or CocaCola also do not know everything about consumers.

            Btw, the most successful consumer tech company in history was probably Sony, they were much broader in scope than Apple. And today it’s probably Samsung. Apple sells very few consumer product categories, so they have less consumer information coverage and market signals than Samsung.

          52. Which is why Samsung’s consumer products are outperforming Apples’ in the markets they directly compete in?

          53. Which is why Samsung discovered that there is a market for phablets. Apple was tone-deaf until they found their market segment was shrinking and people were defecting to Android. As admitted by Apple themselves, just read their slides.

          54. That slide you’re referencing was from April of 2013. There’s just no way the larger screen iPhones weren’t already being tested at that point. The timeline doesn’t gel with your opinion here.

          55. The iPhone 6 was already built in April 2013? Why?
            A larger screen iPhone is not a technical challenge, it’s relatively easy to build.

            In fact Apple had been already building large display iPhones: the iPad.

            The iPhone 6 is the result of a business decision, not a technical challenge.

            Again, it’s clear that Apple saw the market data and decided to build a product to satisfy what consumers really wanted. As any sensible company would do

          56. Yes Ray, the iPhone 6 would have been very far along in development at the time you claim Apple was caught by surprise. iOS 7 in mid 2013 already pointed to larger screen iPhones, and unless you believe Apple creates a new version of iOS in a couple months, we can be sure that larger screen iPhones were in the works *before* the April 2013 slide you keep mentioning. And that also means larger screen iPhones were in the works *before* sales of large screen devices were significant.

            I’m sure you can rationalize and move your timeline around to fit your narrative. Have at it. I’ve made my point.

          57. If you don’t want to believe even Apple’s own internal documents then there is nothing to debate. You already have your preferred theory internalized and no amount of evidence or facts can change that. It usually works the other way around.

          58. I never said anything about Apple’s internal documents, other than the *date* on them, which debunks your narrative. The timing doesn’t work Ray, if Apple was caught by surprise re: the increasing sales and consumer interest in larger screen devices, then Apple can’t have had anything in development at the time of the April 2013 slide. And we have lots of evidence that Apple was very far along with larger screen devices at that time. You’re right on one point though, there’s nothing to debate on this subject.

          59. The fact that the iPhone 6+ took over that market within a quarter shows the Phablet market was not as big as the guessers assumed. Apple overturned a 3 year head start in 3 months. That tells me Phablet shipments were grossly exageratted

          60. That’s a good point. At the time many were saying Apple had missed the phablet opportunity, the actual data showed phablet sales were indeed very, very small. Apple waited until it made sense to bring a larger screen iPhone to market.

          61. That’s not true, as communicated by Apple themselves. Read their slides.

            Essentially Apple’s executives are saying that all the growth in the smartphone market is happening in 1) large form factors and 2) low-end phones. The segment where Apple was playing (small premium smartphones) was CONTRACTING. This is why all equity analysts were grilling Apple in 2013.

            They launched a large and very large smartphone because they had to to remain competitive with other OEMs, that’s where consumer demand was obviously coming from in 2012-2014 according to all market data.

            Of course you can skip facts and even Apple’s own documents and choose to believe whatever you want. Apple knows everything. The halo effect is a powerful bias.

          62. I think what he means, and what I would mean by Apple waiting until it made sense is that Apple did not rush the release simply to have a larger smartphone out there. They worked through what they considered the difficulties a larger screen brings to the table. I’m sure they felt urgency, but they still took the time they needed to get the things right they felt needed to be addressed.

            I still haven’t upgraded. I hate larger phones. I use my phone one handed too much and even the solutions Apple has provided aren’t enough for me (like the swipe that brings the top edge of the screen down to thumb reach). I’ll be stuck at the 5s until I can’t anymore. Still contemplating old style feature phone with either an iPad mini or iPod Touch if no new smaller iPhones are to emerge.


          63. You are part of one of the segments that Samsung has been targetting too. They release every year a mini version of their Galaxy S flagship. Because there are millions of consumers out there who prefer smaller smartphones. I have family members who are in that segment too.

            I wouldn’t be surprised if Apple follows Samsung and they launch a Mini version of their iPhone 6s or 7. There is definitely demand for that.

          64. You mean like the size of the original iPhone? Yeah, Apple will totally follow Samsung on that. *rolls eyes*

          65. Yes, like the size of the original iPhone or even smaller. Wait for it, it might even be called Mini…

          66. I’m sure Apple will copy Samsung on the mini name, or maybe nano. I’m sure Apple hasn’t ever had any products that used those names. Bye Ray, I’m done.

          67. As competitors, of course they copy each other. That’s what sound product management practices advice. Copy what works for others, don’t copy what doesn’t work. Apple learns from its competitors too (Samsung, Google, Spotify, Fitbit, Microsoft, etc).
            Good night.

          68. Sure. But then I am a sucker for OS differentiation. 🙂 If that Samsung ran iOS, I’d be all over it.


          69. Having a 5s, I know what a beautiful, functional device it is, but I’ve always found it difficult to operate with one hand (even the 3G and 4), but now that my eyes keep deteriorating, I use the large ipad far more. I only use the phone if the pad isn’t available, suitable or convenient (and I haven’t lost my glasses).
            I expect to buy the 6s+ even though it will be more obtrusive, but everyone I’ve asked who has one that are long time iPhone users are more than happy with it.
            The two years I went between iPads were frustrating and I’m still using the Panzer iPad 4, wishing it was the Air.

          70. “They launched a large and very large smartphone because they had to to remain competitive with other OEMs”

            Actual data at the time (through 2013 and into early 2014) showed clearly that phablet sales were small. There was consumer interest and growth of course (especially in Asia), but actual sales were not huge. However, it was obvious larger screen devices would be worth doing at some point. Ben Bajarin covered some of this through 2013, noting how small phablet sales actually were.

            I remember all the articles, going on and on about the phablet craze, how Apple was missing out or had missed the opportunity (it was too late! dooooomed!), but the reality was the sales of phablets were very small. Much of that was poor estimates and bad analysis, leading to exaggerated shipment numbers. Apple timed their release of the larger screen iPhones quite well and didn’t miss out on anything. As usual, Apple took the time to sort out their product and gave us something very good which promptly dominated the market.

          71. Again, it’s not just phablets but larger smartphones (larger than the iPhone 5). As Apple’s slides show you, the growth was coming from smartphones over 4”. The iPhone size segment was actually shrinking. This is why Apple lost market share in 2012-2013.

            Of course Apple missed out, those tens of billions in profits that Samsung and others made could have been partially theirs. Missing out on profits and letting competitors grow is hardly something to praise a company for. It was very clear that consumers were switching to Android simply because of display size.

            Again, accusing neutral industry analysts of bad analysis or bias?

            Ben will publish positive things about Apple when Apple gains market share and when they lose market share, so no surprise there.

          72. Apple lost market share because total sales of phones went up. The iPhone has never had a decrease in sales.

            Indulge me: I am the only one selling 2 shoes on my street, that is 100% share. The next year I sell 4 shoes,200% increase in sales, however another guy moves into the street and sells 1 shoe, my market share is down to 80%. It is all about how stats are presented and analysed, it is all about context. You could say I lost 20% market share and so my business is declining or you could see that I grew my business 200%.

          73. The only segment of the Android market that has seen growth is the low end which Apple is not interested in, because it is a low margin, high volume game they have the sense and the privilege of not playing.

          74. In the time frame you’re talking about Apple was already testing larger screen iPhones (as well as larger screen iPads, and likely smaller screen sizes). iOS 7 was a clear indicator that larger screen iPhones were coming (so you’d probably have to go back a year before that even, maybe more). All of this happened before the phablet-craze-Apple-doomed media frenzy and before sales of larger screen devices were significant. Now add to that the reality that Apple doesn’t develop an iPhone model in a few months, it makes it pretty much impossible that Apple was caught by surprise and then reacted to growing consumer interest in larger screen devices.

          75. Of course Apple was caught by surprise. I just showed you their own slides where they conclude that their smartphone segment is shrinking and that “we don’t have what consumers want”. Consumers were switching to Android simply because of scren size. I know a few of those.

            The reason why you still refuse to believe that even after seeing the evidence is beyond my understanding, probably closer to the realm of religious beliefs.

            Companies play with prototypes all the time, but there is a big difference between prototyping and launching an actual product, which is an endeavor at least one order of magnitude more expensive. Samsung has been building prototypes of foldable smartphones for years. No launch yet…

          76. As I said in another comment, that slide you keep referencing was from April of 2013, and we know from many sources that Apple was already testing their larger screen iPhones at that point. Not prototypes, not design sketches, Apple was already in development of the real product. Ray, the reality of the timeline just doesn’t match up with the narrative you’re trying to create.

          77. You mean the same equity analysts that thought that the 6 and 6+ would fail in China due to competition from cheaper Android devices and felt Apple needed a cheap iPhone to survive?

          78. It’s not just the Phablet market, it’s the large smartphone market where the iPhone 6 plays (larger than the iPhone 5).
            That market is huge, Apple has sold already hundreds of millions large-size smartphones, and so have Samsung, LG and others.

            There was obviously pent-up demand for a larger iPhone, especially in Asia where large smartphones have been very popular for years.

          79. Again, we have facts. Dig through Samsungs Financial results. Their margins are no where near Apple’s in any sector.Never have been, never will be. If you cross reference the estimated shipments of the Galaxy Series and the revenue and Profit the Mobile and IT group brings in……..

            Actually Lets not play games. You are knowledgeable enough to know that statement is wrong

          80. “Their margins are no where near Apple’s in any sector.Never have been, never will be”

            That seems like a very strong statement, I assume you have data to back it up? Where is it?

            Samsung’s premium smartphones are obviously very profitable. You can dig all you want in their financial statements, they don’t have this kind of granular information, one can only make assumptions and guess.

            But you just have to look at the estimated BOM, to get an idea:

            Samsung does cost more to build, as they pack leading-edge components in most areas (OLED display, 14nm processor, UFS Flash, DDR4 RAM, etc.) unlike the iPhone, which tends to have components ~1 generation older.

            Looking at those numbers you get 72% raw margin for the iPhone 6 Plus, 64% raw margin for the Galaxy S6, less than 10 percentage points of difference. However, given that Samsung produces their main components themselves, they capture the margin of the component manufacturer too (which is not included in the accounting portion of their Mobile division, but in their semiconductor division). Once you take into account that, you get very similar margins. Definitely double digits for both.

            That’s why Samsung keeps investing and creating new and improve premium product lines (Edge, Note, Plus, etc.).

          81. I can tell you like information and knowledge. Your posts are very detailed, even though we disagree on issues, I respect the fact that you like to gather information. My point is that you are looking in the wrong places.

            Google Samsung Financial reports, as a publicly traded company they are available online. Pay particular attention to the Mobile and IT Division. It contains phones, Tablets, desktops, laptops etc and their Telecomminications unit. Even though they don’t break out smartphone numbers or revenue, or ASP. Take the revenue and profit of the entire unit as part of this excercise. Then compare it with Apple’s and take into consideration estimated shipments of both company’s it is clear Samsung’s margins are no where near Apple’s.

          82. Besides IHS are making wild guesses based on off the shelf parts. Their analysis is incredibly useless. Take for instance the Cyclone Cores, they are custom made chips that IHS has no insight to, or a comparable mobile processor of its ilk to benchmark with and still they make estimates.

            Also you keep repeating superior hardware, being a generation behind. The displays you mention are Pentile displays, because Samsung can not make s high density RGB Oled display work on smartphones. Samsung when they released Super Amoled plus years back taunted the superior qualities of a full RGB matrix to a Pentile one. However to play the big numbers game, they went back to Super Amoled .A high density Pentile display is still a Pentile display suppose Samsung got the first 64 bit chips in mobile? Again, Samsung now supplies less components for the iPhone than they did at the start.

          83. They are guesses but they’re not wild. All industry and analysts use them, as they are made by professionals who know the ins and outs of pricing in the components’ markets.

            Pretty much all major components are one generation behind (Flash, RAM, processor gates, etc.) in the iPhone.That’s Samsung’s major competitive advantage, they can pack better hardware than any other OEM consistently, something that HTC, Huawei or Motorola can’t do.

            In the case of Displays, it’s actually more than a generation behind. Samsung’s smartphones have the best displays in the industry. You just need to go to a store and compare, the difference is obvious to the naked eye, particularly in contrast, viewing angle and brightness. And if you prefer a more technical and detailed look, here it is:

            This is the reason why also LG OLED TVs are considered the best TVs in the world currently. The technology offers a better quality, the main drawback is cost, still more expensive than LCD.

            Apple does not buy Amoled from Samsung because it is too expensive (reduces its margins, which is the key variable Apple tries to maximize) and also it doesn’t want to rely on a sole supplier.

            Apple has been trying to reduce its reliance on Samsung, no doubt about it. They know that they’re providing profits and scale to one of their main competitors. However Samsung technology is the best so they keep coming back. Sure they’d prefer to go with TSMC, but TSMC is now behind Samsung. And Intel does not offer their fabs to non-x86 chips. So Apple currently has no option but Samsung, if they want their processors to remain competitive from an energy consumption point of view (battery life is one of the main pain points for consumers).

          84. I believe another key reason Apple has avoided OLED has also been accurate color representation. Only recently has Samsung been able to deal with that, which is why Watch has been Apple’s first product with an OLED display. Since one of the key uses for iPhone has been pictures and videos, this has made sense. OLED suffered, historically, over-saturation of color and blue-rimming (or whatever it is called). But Samsung has made great strides recently to alleviate that. I suspect Apple will go Samsung based OLED in future phones, unless LG also continues to innovate their displays.


          85. Samsung only supplies one major component alongside several other manufacturers who also supply several major components that are in an iPhone. Apple has a history of consistently switching suppliers in order to drive down the cost they pay for components and make the suppliers work extra hard for their patronage.

            As demonstrated by the 5S, Apple doesn’t need Samsung’s input to sell iPhones. As the iPhone has dropped more of Samsung’s components, it’s sales have marched on regardless. Despite your claims of of it having inferior hardware, it absolutely crushes the Samsung offerings in Sales.

            I still contend that you make a lot of points, but they have no bearing on the reality of the smartphone business. If your points were right Samsung would not be having the problems they have with the sales of their phones.

            Repeating your assertions will not change the facts on the ground. I can see you have great admiration for Samsung, however they are not the top dog in the Technology Industry for a reason.

          86. That history that Apple has is Procurement 101.

            All companies make their suppliers compete for their contracts. Not doing so is a bad practice as it provides unreasonable pricing power to the supplier.

            Samsung is able to compete with Apple in the high end THANKS to their superior hardware. If it wasn’t because of that superiority, they would be another HTC, essentially an assembler with some marketing capabilities. The reason they are profitable is that they OWN the core technology which allows them to constantly differentiate in the high-end. The fact that Apple sells more or less phones is not hardware, and you know it. Design and software are Apple’s key strengths.

            Of course Samsung are among the top dogs in the technology industry. They are the #1 technology company in revenue ($200B) in the world, and in the top 3 in most markets relevant to them, competing with Apple, Intel, GE, Sony… simultaneously: Smartphones, TVs, appliances, semiconductors, displays, batteries, etc.

            I have great admiration for Apple, Samsung and many other companies that bring excellent technology to market.

          87. Your assertion that Samsung is competing with Apple due to their Superior hardware is a statement you have repeated so often, which is not based on reality. It is your personal opinion. The fact is that Apple has wiped out Samsung in the markets they directly compete in. It is borne out by sales figures and sales.

            If you want to keep asserting Samsung is going toe to toe with Apple in the high end phone space, please post your evidence, so Samsung will know that they have it all wrong, and that their high end smartphone sales are rivalling Apple’s and they don’t need to reduce the prices of the S6 and S6 Edge as they announced on their earnings call 😉 ( take that with humour 😉 )

          88. Of course they are competing in hardware: better display, better processor, faster and more flash memory, faster and more RAM, faster charging, wireless charging…. This is based on data, just check any review.

            It’s very obvious and every industry analyst and reviewer knows it. Samsung’s competitive advantage is hardware.

            That might not be as important for some consumers as brand, software or ecosystem. Hence why Apple sells more premium phones.

            Apple depends fully on the iPhone (~80% of profits), whereas Samsung is a diversified company, hence why their revenues and profits have grown in the last few quarters even if Apple has entered the large smartphone segment.

            And my point was not a juvenile discussion Apple vs. Samsung. My point was that there are other ways to differentiate besides the OS. Apple is actually an example, they differentiate on industrial design, retail experience, etc.

          89. But Apple is only able to successfully differentiate because owning the OS allows them the opportunity to leverage everything else you mentioned. Question: if Apple drops iOS and OS X and enters the Android market, would they be as successful? Leveraging everything else you mentioned?

          90. Not only. They differentiate by:
            – wrapping their devices in shiny aluminum (industrial design)
            – building and maintaining large stores in the most expensive areas of major cities around the world (retail experience)
            – signing up and certifying dozens of companies that provide iPhone-only compatible accessories (hardware ecosystem)

            None of these have anything to do with the OS but are very effective ways to differentiate.

            Of course if Apple drops iOS they will probably less successful. But their design, retail and accessories would still allow them to differentiate.

            Again, and no need to reiterate it, the OS is not the only way to differentiate, and is not the only reason for Apple’s success.

          91. Let me get this straight. You feel free to quote analysis from IHS and all other random websites but refuse to believe actual news coverage from Bloomberg, WSJ, CNN, BBC, FT, Forbes,Fortune, every major news organisation, even Android and Samsung fan websites of the 8 consecutive quarters of YOY(how companies are judged) quarterly earnings decline, all taken from Samsung’s publically released earnings report?

            Are you for real?

            So according to you, all the News outlets colluded to lie about Samsung’s earnings and Samsung has done nothing to correct them for erroneously claiming their profits declined for 8 consecutive quarters?

            Maybe you should let Samsung know, as they obviously do not know that the whole global media has conspired to misrepresent their earnings report. Maybe Apple has bought off all those publications.

            You get to make up your opinion. You do not get to make up facts

          92. No they don’t. You’re mixing the results of the IM division with the results of Samsung Electronics company and going off-rails. There is no conspiracy.

            Or course YoY declined. Samsung had virtually no competition in the premium large smartphone segment and since the introduction of the iPhone 6 they do. But Samsung Electronics profits are growing again since 2014Q4. The semiconductor division just posted an 80%+ increase in profits YoY. That doesn’t make it to the headlines, but it’s the largest profit increase of a major semiconductor company in probably decades.

            Samsung vs. Apple is a much more catchy topic for consumers. The fact that Samsung is getting close to overtake Intel and become the #1 semiconductor company in the world gets overlooked.

            It’s not erroneous, it’s just not that interesting for the general public.

          93. Just give up. It is getting embarrassing.

            We are on a public forum, people can see our posts and they know who is right. Samsung Electronics earnings is a matter of public record easily accessible to anyone as mandated by law of being a publicly traded company. So we are not discussing opinion but facts.

            I will not continue with this debate. If you will not accept facts that are of public record, what is the point of discussing ideas or opinions?

          94. I just posted a graph with Samsung Electronics operating profits. They’ve been growing since 2014Q, roughly in those four quarters the series is:

            $4 Billion
            $5 Billion
            $6 Billion
            $7 Billion

            What is so hard to see?

            You might be confused because the news outlets thrive on negative news, as it gets them a larger audience. Normality does not make for interest news. Samsung is not going bankrupt, its profits are actually growing again over the last four quarters. The data is clear. The reason is that while IM division profits are flat lately, the semiconductor division is having significant profit growth.

            Here is the graph again:


          95. I can differentiate an android phone by covering it in fur, and everyone would call it the fur phone, it is different but will it sustain profits/ after the first wave of people using my Android phone?

            This thread is about iPhone sales. Ben ,makes a clear point which I and several others have tried to point out to you that the iPhone succeeds consistently and Android OEM’s including Samsung, because Apple has successfully differentiated itself from everyone else to the point that their experience is unique and that has great value. He contends, and which is borne out by facts, that you can not successfully differentiate yourself from others if you run the same OS. Sales figures bear him out, history bears him out. Samsung, HTC, Motorola ( Droid) and now Xiaomi (is in the process of decline), have all seen great decline after the first wave. Apple has been riding the waves since 2007, consistent and constant growth.

            Instead you have fixated on the word differentiate and completely gone of tangent and making a totally separate argument, which has no relevance and bearing to the discussion at hand.

            Maybe I am being uncharitable, I am trying to understand

          96. Apple succeeds because of many factors, the OS being only one. They have a great retail experience, great design, marketing, brand name, customer support, Steve Jobs – Jesus Christ-like figure which provides a lot of free publicity… and a key factor that is not so sexy: great operations and execution.

            Also, they’re bringing into computing many aspects from the premium fashion industry. And some people like to pay for that, regardless of the relative merits of the computing devices.

          97. Ah, there it is. Thought you’d forgotten the cult/religious, I’d like to say allusions, but you’ve gone straight for the outright statements.

          98. Any company wants to have a religious-like following. Blind loyalty to the brand is very profitable, as it effectively lowers the bar for the company to keep market share and ASPs up.

            Companies like Apple and Harley – Davidson enjoy those benefits. A company like Samsung does not enjoy this to such an extent. This is a pretty well-known fact in the industry so I’m not sure whether you disagree or you think it is true but obvious.

          99. Check your facts, Samsung has had 8 straight quarters of decline in profits and revenue. Don’t take my word for it, they are publicly listed company, their financial report is online and transcripts of their CFO’s conference call with analysts after their earnings release are widely available

          100. No they haven’t. Check the financial statements. You are talking about the IM division, which is only one of the four divisions they have. Samsung Electronics revenues and profits have grown in the last four quarters. That’s the advantage of being a diversified company that depends on the overall electronics market, not on a specific product category like Apple, BlackBerry, Motorola or HTC. The power of R&D investment in science and technology, patent generation, CapEx investment and diversification.

          101. Speaking of Hardware. The A8 is superior to the Exynos 7. As you yourself aluded. The Exynos has 4 Big cores and 4 Little cores which never operate at the same time. Why? Because it is not optimal for thermal and battery life reasons to run the Big ones for an extended period of time. We are talking of smartphones, were 99% of the use are single threaded purposes and more of GPU related functions. So people buying the S6 and S6 Edge will use the Little Cores 99% of the time. The few times the Big cores are called on, the phone will throttle down and revert to the Little cores after a brief period. Why not just go with the Little cores, and focus on the GPU as that is what is required? Well Samsung and the OEM’s have to deliver great, theoretical benchmarks to impress and the only way to do so is to include the Big inefficient cores in other to get benchmark kudos and press.

            Anandtech after exposing Samsung and other OEM’s gaming of benchmarks made a good point which I agree it. They are only able to game benchmarks because of the ignorance ( not in a derogatory way, just simply lack of knowledge) of how bench marks are to interpreted

  2. Just one hour in the Beijing airport demonstrates Apple’s opportunity in China. But, need to go to Bangkok airport to fully appreciate why Apple makes gold iPhones.

  3. “Android forces the hardware landscape down in cost, which has a broad impact on components and features. Apple does not have to play this game and can innovate on feature, function, user experience, etc.”
    And yet Android is where pretty much all of the innovation has happened lately
    – specs-wise, Android flagships are significantly ahead of iPhones (best screens, best cameras, fastest SoCs, largest storage, fastest radios…)
    – features-wise, pretty much everything is trickling down from Android to iOS: touchID, widgets or rather, interactive notifications with a blatantly hypocritical renaming, intents, full-day batteries, voice assistant (gNow/Siri), gamepad handling, multi user accounts, managed language (swift/java)… I’m sure pens, multitasking, mouse handling and multiwindows will follow some day, as well as true widgets maybe.

    I’m curious as to what innovations you reckon happened on iOS ?

    1. Just for the record. Recent iOS innovations. Ignoring those before App Store.

      Malware app scans
      Force Touch – Android not yet
      Full Device Encryption with Touch ID unlock – Android not yet
      SWIFT language – Android not yet
      Metal Interface – Android not yet
      64 bit SOC
      A9 and A9x (soon)
      Immediate OTA security updates – Android not yet
      Watch – Android not yet
      HealthKit research platform – Android not yet
      10,000 Genius staff providing free diagnosis and instant repair – Android not yet
      Apple TV (soon) as gaming, HomeKit, media, OTT, and IoT server – Android not yet
      Apple Music Global Radio – Android not yet

      Some older innovations –

      MacBook Air
      App Store
      Apple Retail glass and mortar
      Full support and service of all products – Android not yet
      Full commitment to and delivery of security and privacy – Android not yet

      Just for the record.

      1. Malware app scans -> The PlayStore does that too, hence the 0.15% only of potentially harmful on clean Android devices.
        Force Touch – Android not yet -> OK
        FaceTime -> ? we’ve had Skype for years, and gTalk/Hangouts for a while too.
        Full Device Encryption with Touch ID unlock – Android not yet -> Device encryption predates TouchID (on Android too), and the Atrix had touch unlock years before the iPhone
        SWIFT language – Android not yet -> ?? that one is actually funny, Swift mostly catches up with Java features that Obj-C was sorely lacking for years
        Metal Interface – Android not yet -> Android has supported native code inluding for GPU for years. Probably useless on the Android side though, because of so many different GPUs.
        64 bit SOC -> that’s ARM not Apple ?
        A9 and A9x (soon) -> well, if you want to double count SoCs and coutn each one, Android has about a thousand of those ?
        Immediate OTA security updates – Android not yet -> except on Nexus, Android One, GPE and good OEMs.
        Watch – Android not yet -> ?? There have been Android smartwatches for a long while before the iWatch
        HealthKit research platform – Android not yet -> OK
        10,000 Genius staff providing free diagnosis and instant repair – Android not yet -> And telling us we’re holding in wrong and denying malware attacks. Android not yet.
        Apple TV (soon) as gaming, HomeKit, media, OTT, and IoT server – Android not yet -> ?? Android has had gaming consoles for years (ask nVidia, tablets too), Google’s version home HomeKit is out too. Not sure what you mean by media, OTT.. as for IoT server, where’s Apple’s ?
        Apple Music Global Radio – Android not yet -> Maybe you’ve heard of Spotify ?

        1. obarthelemy – The degree of deference that you pay to the Android eco-system and Samsung in particular would suggest that your comments are less than objective/free. No system has a monopoly on innovation, Android does some good stuff, so do Apple, as do Samsung. Samsung currently, I gather on the silicone side 14nm implementation and on screens etc of which Apple is a customer.

          Your blogs suggest a of lack of objectivity, an example is the 64 bit issue, all the competition from Intel down admitted pretty publicly that they got caught flat-footed and hurried to catch-up over the following year 18 months. I am assuming you understand the difference between an ARM reference design and bespoke silicone.

          Siri, was dismissed by Google/MSF, until they brought out their own versions. It’s like sport. I support MU in the EPL, but if Arsenal or Barcelona have a great game/player, I am happy to acknowledge this, as are most other real fans. This seems to apply to most bloggers on this site except you. If you are “paid” for your “opinion” you should have the decency to admit it.

          1. That doesn’t make “64 bit” an Apple innovation as listed by the parent. Who goes on to double-count Apple’s 64-bit SoCs right on the next line. That’s… innovation padding ?

            Siri was bought by Apple, not invented there anyway. If that counts as an Apple innovation, I’m a world-class musician. And painter. And cook. And engineer :-p Google Action and Voice searchboth predate Siri

            But I guess I’m the one being irrational or paid (which I’m not).

          2. And Google bought Android from an ex Apple and Microsoft Employee. And FYI, Apple was a founding partner of ARM. Also explain why Samsung needs a high clocked 14nm Octa-core chip to edge past a supposedly inferior non innovating 20nm low clocked dual core chip?

          3. Sure, if you wish to count the lifetime work of any employee that ever briefly worked for Apple, the lifetime output of any company in which Apple ever had a share (which they sold), etc.. then Apple invented the world.
            As for “edge past”, look at the graph, it’s a bit more than that ^^ (from the Anandtech LG G4 review)

          4. Apple didn’t just have shares in ARM. They founded ARM, with a purpose and then divested once they got what they wanted.

            The OP claimed Siri is not innovation on Apples’ part because it was a purchase so I had to point out that Android was a purchase too. Do try to keep up;)

          5. Regarding the aforementioned review, the octa core beat the dual core in some tests, the dual core beat the octa core in other tests. So again I ask, why does Samsung need an 14nm octa core chip, clocked higher, to edge past a lower clocked 20nm dual core chip?

            Are you under the impression that the Exynos would live with an A series Octa core chip from Apple. Hint: no one has been able to Match the A8X because it is a tri core chip.

            Edited to add that I am referring to CPU cores

          6. Well, it does sometimes blow past, not edge past.

            It’s not really octo-core but 2x quad-core, with low-power cores handing over to high-performance core when needed (that’s called big.LITTLE). Some SoCs are able to use all 8 cores, I don’t think (not sure) the GS6’s does that.

            As for performance differences, you’d have to look at the whole picture to know where they really come from: the hardware (the GS6 has 3.8x more pixels to move than the iP6), the OS (Android does a lot more multitasking, Samsung overloads it with a custom features), the app (Chrome supports more features than Safari)….

            The one sure thing is that Apple’s SoCs are good, but no longer the fastest. Anandtech has a nice in-depth look here:

            The SpecInt detailed tests are funny, they go 1:2 either way at times. Very partial view of perf though, and single-thread, so number cores x0.8 x score to get an idea of real-life (or of less artificial life ^^)

    2. What’s going on at the chipset level with Apple is truly something. This is dictating the advancements in software and security. I use Android regularly and always have, there is just something visually and functionally different about iOS that is very objective. A lot has to do with how the software is tuned to hardware. We don’t see this elsewhere and it is all related when it comes to UX and I consider it innovation. The security stuff is as well. Wait until you see how the other brands handle payments, biometrics and security. It’s a mess.

      1. My guess is it will probably take at least three to five more years before it becomes obvious how large Apple’s advantage is due to making the whole widget. But for a long while yet we can look forward to many spec/feature lists that prove how far behind Apple really is and how much Apple is not innovating.

      2. Apple are doing 2 things with the UI: a high-priority rendering thread, and preloading a “dead” screenshot of apps while the actual screen is building to give the impression of speed. That’s nice and clever, but they’ve been doing it since iOS 1.0, as innovations these are a bit stale, and don’t have much to do about HW/SW tuning. I’m guessing another thing that makes iPhones feel fast is the low pixel count, Android flagships have to work a lot harder: a GS6 has 3.8x the pixel count of an iP6.

        As for payments, biometrics and security… gWallet has been out for years, I’m not aware of any issue (aside from adoption ^^). Biometrics is indeed having a rough start on Android. As for security, since iOS is closed source, we only know what Apple is telling us, which is sometimes very censored ( ) and a bit shady ( ). There have been and will be numerous security incidents on iOS too, I haven’t seen any actual scorecard except . I’ve tried navigating but it’s either very very slow or bugged.

        1. They’re clearly doing much more than just those two things. Benchmarks (especially when they’re not being “gamed” by Samsung) consistently show the iPhone to outperform its specs. Fewer cores, perhaps lower clock speed, yet first-rate performance. With attendant benefits for size/battery life/charging speed, which is more important to most users than sheer speed.

          1. I’m unfamiliar with the concept of “outprforming its specs”, I’m guessing magic is involved. I know price/performance, and with some tests results (admittedly, I’ve picked the worst) like the one in the screenshot, I beg to have doubts. About “first rate performance” too.

            Size doesn’t work well for Apple, they have one of the worst device size/screen size ratio in the business (flagships category: 66%; vs 70-80% for everyone else). Ditto battery life, only the 6 series can last a full, busy day. As for chargin speed, that’s simply untrue.

            All charts ripped off , which is their latest smartphone review, with a nice recap of previous results.

          2. Again, Android = specs; iOS = user experience.

            Of course you can drag impressive short-term numbers out of a fast-clocked eight-core processor running a purely mathematical test. Nobody cares.

            Real-world, the iPhone 6/6+, which are about to be a year old, more than hold their own:


            Specifications, like statistics, can be used to tell almost any kind of lie. Want a device that has good battery life, but disappears in almost any small pocket? That has impressive actual and tactile quality? That can be updated; that will hold its value; that offers security, privacy, in-store support; that offers first-rate performance, and the best app and ecosystem support? None of those things can be described by a specification, they are all complex qualities that result from careful, well-planned engineering in which multiple important factors must be considered. Each of them is much more important to ordinary users than a silly engineered benchmark score.

          3. You’re the one who brought up specs, I only brought up data about those specs.I won’t doing again for the new features you’re bringing up, but they’re of the same vein. Value, security, best app and ecosystem… are far from obvious Apple advantages. We’re moving into irrational territory, I’m tired of having to fact-check every fantasy.

        2. I started my tech life doing architecture analysis of chipsets and continued that analysis since 2000. I am continually fascinated at the design level of Apple’s SoC. They have the luxury of doing things others do not for a wide range of reasons. One they don’t have to submit code back to ARM. 2 they don’t have to worry about certification the way someone like Qualcomm does.

          We use the term transistor budget. The way you spend your transistors is what yields results. One can spend transistor budget to have the highest specs, but that doesn’t mean it is the best chipset architecturally in the areas that matter. What Apple is doing in SoC design is truly innovative. You have to understand chipset design to appreciate it. And it is getting better and better. This core competence is a very under appreciated part of the Apple story.

          1. In other words, SoCs powering Android have much more room for optimization. For instance, Samsung is using standard ARM cores in their Exynos processors, yet they’re able to match Apple’s performance due to raw physical superiority (smaller gates). It’s rumored that Samsung is now working on custom cores, so in that area they have much more room for improvement as they start from ARM non-optimized baseline, don’t they?
            We can expect faster speed and energy improvements on Exynos than on Apple’s Ax SoCs?

          2. There’s no info whatsoever on Apple’s cores. For all we know, they are standard cores too.

          3. Yup, Jony Ive is sitting there doodling processor designs on napkins, wadding them up and saying, “darn, let’s just go with the reference design.”

            LOL, that’s what Apple bought PA Semi for! Furthermore, they bought 20+ companies without disclosing details… So, if we don’t even know what companies they bought and why, then you and Samsung can continue holding your breath about details of processor design.

          4. Samsung is hardly holding their breath. They’re developing custom cores, developing leading edge OLED displays, including flexible ones, and building the largest and most advanced semiconductor production complex in the world, which will open in 2017. Apple will probably have to keep being one of their customers if they want to stay in the premium hardware race.

          5. Apple doesn’t need Samsung as much as Samsung needs Apple. historically Samsung now supplies less components for the iPhone than they used to. There are other hardware vendors who are ready to take over, however ther is only one iPhone. Apple can afford to walk out in Samsung, Samsung can not.

            Besides, Samsung is no where near Intel. At some point Intels dreams of cornering the mobile chip market with their designs will implode and they will become an ARM fab like Samsung. Do you honestly think Samsung can take on Intel?

          6. They both need each other, otherwise they would not engage in mutually beneficial trade. That’s the basis of voluntary deals: if one of the two parties didn’t benefit, they would not make a deal.

            Samsung has already taken on Intel in many areas: memory market, both volatile and non-volatile, Samsung has about a third of the world market (Intel left as they could not compete, now Samsung takes most of the profits in the industry, read the HBS business school case), and now microprocessor market. Intel has less than 1% market share in smartphone industry, while Samsung supplies to the two main premium OEMs (Apple and Samsung). Intel is still reliant on declining PC market, while Samsung is reliant on the large and growing smartphone market.

            Not only that but Intel used to have a 3-5 year lead in leading edge semiconductor process and now they are almost at parity, both at 14nm. Samsung has effectively caught up (and surpassed TSMC on the way).

            That’s why Samsung posted an 80% jump in profits last quarter, while Intel is essentially flat as it relies just in legacy dominance of declining PC market.

          7. No. Samsung needs a combination of 8 higher clocked cores to deliver the performance that two cores from Apple deliver. Samsung should feel free to produce a dual core chip that rivals the A8.

          8. How does that relate to core customization?

            Also, it’s just 4 real cores (the other 4 are not used simultaneously).

          9. Which is why I said a combination of 8 cores. Apple is already doing more with less and has room to do even more with more(more cores, higher clocks). Samsung has to go the other way and learn how to do more with less, as Intel is finding out, that is much harder

          10. Apple cannot improve the performance of its processors vs. Samsung’s via silicon. Because anything Apple can do, Samsung can do, as Samsung actually owns the leading-edge manufacturing IP and fabs. So that will always play in favor of Samsung, unless Apple decides to build its own fab.

            Samsung can cheaply do what Apple has done, hire a group of talented IC designers and develop custom cores. I know they’re talented because a friend of mine is in that team at Apple… In fact Samsung is probably doing it.

            Developping custom cores costs ~$100M
            Developping a leading-edge fab costs ~$10B+

            Much less cost for Samsung to improve its processors than for Apple to do so.

            Yes, Apple can add 2 more cores, and that’s all. But that eats their profitability, hence why they’re reluctant to do it. They pay for the silicon to Samsung, so the less silicon the better.

            It’s in Apple’s interest to provide the bare minimum hardware that will avoid its consumers to switch, and nothing more than that. Anything beyond that eats their profits, which is their main driver. This is why also they don’t want to sell mid range phones.

            Probably one of the reasons why it took them so long to make larger phones is because the display is the most expensive component in an iPhone (~20% of the cost), and those would be profits lost in additional revenues for LG or Sharp.

        3. People forget that most phones run single thread tasks and in those benchmarks the Apple A series reign supreme. Those Cyclone cores are humongous in their silicone count, which is why they do not need high clocks and hence people needs just two of them. While the Android side need 8 puny cores which you have to clock high to give you the performance of the A8. It is a bit of a simplification.

          However looking at those bench marks, imagine what an octa core version of the A8 would do.

    3. You should re-read Ben’s line which you are quoting here and the one about “you are only as a good as your competitor’s lowest price” you reacted to above. The key to success in just about every market is differentiation and right now, the only way Android OEM’s can differentiate is through hardware features and price. That is why Android devices tend to get new hardware features before they appear on the iPhone: the OEM’s are desperate to differentiate. Android might compete with iOS but realistically, the Android OEMs only compete with one another.

      Also, differentiation and innovation are not the same thing. History is littered with failed tech companies who were the first to add some new hardware or feature.
      Adding new or improved hardware really is not innovative unless it leads to a significant cost savings or opens up new use cases.

      This is where Apple has an advantage. Being the only iOS OEM, they do not have the same urgency to differentiate with hardware and specs. This gives them the luxury to wait for technologies to mature before adding them and gives them more time to integrate them with solutions. This is why the iPhone was not the first device with a fingerprint reader, but was the first to get a high percentage of users to accept it.

      1. I think the reason why Android OEMs differentiate on HW and price is because that’s 1- what customers care about 2- what they know to do. They’ve been trying to do software forever, and Android gives them full leeway to do that… but they’ve been failing: bespoke launchers are mostly derided, other apps are labeled bloatware… The only somewhat appreciated OEM software features I know of are Samsung’s KNOX, multiwindows and pen utilities, and Archos’s video player.
        I don’t agree with the “innovations only count if they’re commercially successful” philosophy. Picking innovations to build into a successful product is a skill, but not quite the same one as plain innovating even if you then can’t market whatever you built around your innovation.
        You’re also totally discounting branding as a factor. I’d argue phones are in the same category as shoes and handbags nowadays: aura before functionality/price. Apple are certainly leading in driving that, both from a design and branding perspective, which does count as an innovation. As a grumpy untrendy old nerd, I don’t like it though :-p

        1. “I think the reason why Android OEMs differentiate on HW and price is because that’s 1- what customers care about 2- what they know to do. ”

          It’s really only #2. Very few customers actually care about hardware and price. This mis-belief seems to be commonly held by technical people who don’t study business or economics. What customers really care about is functionality and value.

          “I don’t agree with the ‘innovations only count if they’re commercially successful’ ”

          We are talking about commercial entities that only survive if they produce commercially successful products, so your disagreement is irrelevant. That said, you may be confusing innovating with inventing.

          “You’re also totally discounting branding as a factor.”

          Just because I did not mention it does not mean I am discounting it. The conversation was about hardware, not all forms of differentiation. Anyhow, which do you think comes first: brand or differentiation? I would argue the latter as it is successful differentiation which builds brands.Sadly, too many companies which successfully build their brands through differentiation end up relying too much on their brand and stop innovating.

        2. Customers only care about the Apps and their services and the experience. OEM’s try to differentiate on specs because they all run the same OS and hope bigger specs will make them standout. Only nerds care about spec numbers

    4. “I’m curious as to what innovations you reckon happened on iOS ?” ~ obarthelemy

      Obarthelemy, your question demonstrates your complete lack of understanding of Apple and therefore your complete lack of understanding of mobile. You do not recognize iOS as having any advantages over Android therefore you are always baffled by Apple’s success.

      You surely disagree with my contention that the iOS ecosystem is superior to that of Android. I’m sure you will be able to introduce a thousand arguments to counter my conclusion. I only need introduce one piece of evidence to prove my point. The market votes 93 out of every 100 dollars spent on mobile for iOS. And it is the market — not you or I — that is the final arbiter.

      1. That’s not the question though, no one is disputing that Apple makes most of the profits in mobile. the question is whether it’s because of technical innovation or something else.
        What’s bothering me is the ex-post rationalization that it must be because of technical superiority. Look at the above list, it’s almost entirely bunk. There’s no shame in saying what makes Apple’s success are branding and design, same as for shoes and handbags. Actually understanding that before anyone else is a great feat.
        I could agree with any contention, I just need facts to back it up ?

        1. “I just need facts to back it up ?”

          Please rationalize how all the Android phones in the comparison charts you posted above all have at least twice the number of cores, significantly higher clock speeds, up to four times as much RAM, and larger batteries.

          Yet they barely beat the iPhone.

          The tests that do appreciably beat the iPhone compare OpenGL performance – an irrelevant and misleading test, as Apple innovatively introduced Metal (that would be one of the innovation “facts” you insist are missing).

          That you aren’t decrying the relatively pathetic state of Android, rather than pretending everything is awesome, is beyond all rational thought.

  4. I think that estimates for Android to iPhone switchers are too low (in general from myriad analysts) and is not taking into account the damage Stagefright has done to the Android brand. With more and more people beginning to understand the importance of software updates, security, and privacy, they are learning that Google and Android can’t be tursted to protect their data. My hunch is that significant numbers of people are either ditching their Android phones as we speak, or have decided that they’re not buying another one. We who work in IT need to stop giving Google and Android a free pass when it comes to security. I for one would like to see a mass exodus as I believe Google deserves to lie in the bed its made. I wrote about this on my blog on Friday:

    1. Don’t forget privacy. Privacy and security go together and make the case for iOS for people who would otherwise be platform-agnostic.

  5. In the U.S., carriers are announcing that they are dropping subsidies for iPhone, and smartphones in general. What are your thoughts on how that impacts iPhone growth going forward? Do you think more consumers will hold on to their iPhones longer as opposed to upgrading every two years?

    1. It does seem that iPhone sales are growing nicely despite less subsidies. I never thought a lack of subsidies would be an issue. Humans love buying things with monthly payments. It’s how people can afford BMWs, they can’t buy them outright so they lease them. We get our TV via monthly payments, our mortgages or rent, and on and on. The same thing will happen (is happening) with iPhones. The financing angle has been obvious for years. So I would think it won’t have an impact on when people buy new iPhones. It could actually make it even easier for more people to afford an iPhone. The death of subsidies may be a very good thing for Apple, it spurs the move to financing, which is how humans buy a crapload of stuff already.

    2. Drop subsidies, offer no-interest installment plans instead. They run a credit check on you either case. Nothing has really changed.

    3. I’ve seen a study a long time ago ( ) that did show iPhone sales and subsidies were correlated. It was a bit iffy though, and I’ve seen no other since then, which is weird as I’d think the subject would be deemed important. It also seems T-Mobile customers are less iOS-oriented, though that may be due partly to historical reasons, TMo was very late to the iOS party.

      Another factor is consumer credit: in some countries (US), financing purchases via debt is routine, in others (EU), debt rarer and more difficult to get into.

      1. That was the consensus thinking (from those who forgot that iPhone started out without subsidies and still sold well.)

        But this new round of dropping subsidies is really just an accounting gimmick. You still get locked in to a two year installment plan, the end of which the phone is paid for. If you bail early for another carrier, you still have to pay off the phone. In that regard the carrier is not stuck holding the ball, so to speak. So they’ve succeeded in making the customer responsible for paying for the phone in the case of early termination of agreement.

        At least now on has the _option_ of paying for the iPhone upfront, which has always been my preference.


        1. You are correct and here is the thing, it is actually better for the consumers as it should allow them to sell their 1 year old iPhones for new ones as they will not be SIM locked and therefore Apple will make even more money if that is even possible. 🙂

        2. That’s how I’ve done it since 2008 when I had a sim on an enterprise plan. Having left that employer and discovering the Wild West of retail phone plans, it’s still far cheaper to buy/finance your iPhone and run a BYO plan by hundreds of dollars, e.g. $1400-1500 phone, $30-40/month plan as opposed to a $2900-3200 contract. Apple even offers finance, but I haven’t looked at the interest charges on that, but now my favourite retailer is selling the phone and often has interest free plans.

      2. “Another factor is consumer credit: in some countries (US), financing purchases via debt is routine, in others (EU), debt rarer and more difficult to get into.”

        Household debt in all developed countries continues to rise, and continues to be at high levels, including Europe, and including France. The data doesn’t seem to agree with your notion that debt in the EU is “rarer and more difficult to get into”.

        1. that one takes a bit of work and since you’re as usual trolling with no clue what you’re talking about, I’ll do it only for 1 country:

          US: consumer credit 3,300 b$ (pop 320m, gdp 17t$)

          Fr: 160 b$ (pop 66m, gdp 2.8t$)


          1. A Feb 2015 report from McKinsey shows household debt increasing in almost all developed countries including France. I wouldn’t be surprised if the US was far and away the leader in consumer debt, but proving that the US is worse than France doesn’t mean household debt isn’t rising in France, and it doesn’t come close to proving your notion that debt in the EU is “rarer and more difficult to get into”.

          2. And acceleration = speed.
            US consumer debt is 2x or 4x (vs GDP or pop). If double or quadruple is the same to you… I’ve got a bridge for sale ?

          3. I have no doubt that US consumer debt is out of control and growing fast. That’s not the issue at hand. The discussion is whether or not consumer debt in the EU is a rare thing, which speaks to whether or not paying for an iPhone via monthly payments will work or won’t work. The data doesn’t support your position that monthly payments won’t work. While consumer debt is lower than the US, it’s a stretch to say it is rare across EU countries.

  6. It is true that someday, the iPhone will reach saturation. But I have been hearing that same prediction repeated quarter after quarter for the past five years. Predictions are easy. TIMING is hard.

    Ben Bajarin raises some great reasons to suggest why the iPhone still has some headroom. But let’s look at the megatrends too. As Benedict Evans says, the smartphone is the new sun. Everything else revolves around it. And as security and payments and everything associated with the internet of things revolves around the smartphone, Apple’s integrated approach becomes more important, not less.

    1. Apple are not the only one with an integrated approach though: MS’s approach is integrated, and Android’s Nexus and One too. What’s surprising is the demise of the Google Play Edition and Silver programs.
      I’m wondering if Google will resuscitate some kind of midrange and high-end “vanilla” programs, apart from releasing 2 Nexus phones this year for the first time. OEM commitments have proven fairly worthless in the past (except Moto’s), so anything that’s not Google-controlled will have low credibility, I think.

      1. Google doesn’t make the hardware in the Nexus line.

        As Ben has pointed out, people don’t get the massive advantage Apple gets from designing the processors in the iOS line.

  7. Don’t you think the main reasons for iOS market share gain are that Apple:
    1) now produces larger smartphones and phablets and
    2) signed a deal with China Mobile?

    This is what many analysts point to but it seems absent from this analysis.

    If that’s the case, this step up on the iOS user base in 2014-2015 cannot be reproduced again.

    Also, your theory that Android OEMs cannot invest enough could have been applied to Windows PCs in the 1990s. But this didn’t deter Windows significantly, even if Windows OEMs had razor-thin margins. Maybe Intel had the money to invest then on hardware improvement, but not that advantage does not exist?

    Curious about your thoughts, thanks.

    1. Once again, lots of theory when their facts. The iPhone’s have a retention rate unparalleled in the industry and a huge install base. The previous iPhones sold massively breaking prior records despite their small screens and China Mobile.

      I am not saying the aforementioned factors didn’t help. However every year someone comes up with a reason why the iPhone has done well that year and will then fail the next year.

      However let me throw in another factor. The collapse of the Samsung Galaxy S series customer base. iPhones are currently outselling the Galaxy High end series in South Korea, ouch

      1. Who said the iPhone will fail next year? It seems you didn’t read my posting, or are debating with someone else.

  8. On the topic of differentiation, a recent reminder that not only OS but other attributes such as
    DESIGN matter:
    “…the Edge far exceeded anyone’s expectations. Turns out, people loved it. The reception toward the Edge was much more than anticipated,” says Llamos, “and ever since then Samsung has been trying to trying to play catch-up.”
    “That Samsung took a gamble on an oddball phone with a premium price is remarkable. Even more remarkable, the Galaxy S6 Edge+ tells us the gamble paid off. And that tells us differentiation is possible, that smartphone sameness doesn’t have to be the norm.”

    1. I think Apple since Jobs’s return did great at showing how design matters. There is only one problem, it is harder than just upping specs. If it were easy, I am sure more people would do it. First thing to get most tech companies to contend with, regarding design, is to get them to understand that design is not just decorative. Then it requires taste, which also seems lacking in many tech companies.

      I wish Samsung had done a better job of predicting the success of the Edge so we could get a better idea of how much of a difference that design made. Right now it can only be a guess. How much did they estimate? How much more could they have sold?

      I wish more tech companies (not just handset makers) would give more thought to design. To the topic discussed below, there is also how the physical design (both aesthetics and under the hood) operate with the OS. With the OS being supplied by an outside vendor it makes it harder to tune in either direction—the hardware to the software or the software to the hardware—which in turn tends to make most aesthetic design choices more decorative than functional. I’ll be curious to see how long the “Edge” can maintain an “edge” in the Android ecosystem.


      1. From some reports it seems Samsung had planned an 80/20 demand proportion (80% for the standard S6, 20% for the S6 Edge), but the actual demand has turned out to be 50/50. They had to open another production facility to satisfy this unexpected demand.

        It’s quite remarkable given that the Edge is really expensive, the top of the line model is priced at over $1,000.

        It’s rumored that LG is already preparing a model with “infinity” display too given Samsung’s success.

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