Why iPhone Scarfs Up All the Profits

Steve Wildstrom / November 17th, 2011

Andrew Kim’s Minimally Minimal blog has a stunning visualization that goes a long way to explaining how Apple’s share of handset profits is vastly disproportional to its market share. If you scroll down a ways in the linked page, you’ll see a graphical comparison of Apple’s iPhone line to Samsung’s current U.S. product market.

Kim says Samsung makes this many phones to earn a fraction of what Apple does, but I think he has it backwards. A major reason why Apple is so much more profitable is because they make so few products, not just iPhones but across all product lines. Minimizing the number of product variations lets Apple enjoy massive economies of scale in its supply chain. Buying larger quantities of fewer components lets it drive harder bargains with vendors, minimizes inventory costs at every stage from raw components to retail, and simplifies manufacturing.

It’s a major secret of Apple’s (and supply chain maestro Tim Cook’s) success.

(via Daring Fireball)

 

Steve Wildstrom

Steve Wildstrom is veteran technology reporter, writer, and analyst based in the Washington, D.C. area. He created and wrote BusinessWeek’s Technology & You column for 15 years. Since leaving BusinessWeek in the fall of 2009, he has written his own blog, Wildstrom on Tech and has contributed to corporate blogs, including those of Cisco and AMD and also consults for major technology companies.
  • Anonymous

    The truth is because Apple charges a premium for their products. They over charge for what the cost of their products really cost.

    • Did you actually bother to follow the link? The truth is Samsung have just way too much product on the market, with each having their own development, component and other costs. Apple has just 4 devices.

      • Anonymous

        Many people are getting tired of IOS 5.0 issues.. the fix.. ios 5.0.1, with more issues. Apple switched from Nvidia, to ATI.. They also switched from Atheros to Broadcom. Broadcom is the worst. They also took out the Multi drive out of the mac mini but yet, the price went up from the previous model. Its not about how many devices….its about the fake front that Apple has. Give it 3 years and Apple will be the new MS….

    • Jfutral

      If by “premium” you mean Apple doesn’t do “cheaply made crap”, you are correct. As for “over charge” you could probably make a case if people didn’t actually buy their products. But since that isn’t the case, well, now you just sound irrationally bitter.

      Joe

      • The fact is that these days Apple is able to sell a premium product at prices that meet or beat the competition. Look at the problems other manufacturers are having trying to produce tablets that approach iPad quality at the iPad’s price (without carrier subsidies.) The iPhone is cheaper than many high-end Android competitors. Macs cost more, on average, than their Windows-based competitors only because Apple refuses to compete for the low-end market. Again, look at the terrible struggles Windows OEMs are having trying to match the specs and price of the MacBook Air.

      • Anonymous

        Well, they do come off the same assembly lines right next to pcs. Also, Explain all the iphone 4 issues, Macbook air issues, yellowing of the screen, Light coming out of the sides of the screens on the new iphone 4s., explain the Ipad wireless issues, not to mention all the issues with latest IOS 5 issues and IOS 5.0.1. Not to mention the 4 new Trojans that came through, explain all the issues with the Apple Time capsule overheating and burning out. Then we have the issues with the recall with the Ipod nanos that were blowing up. The list goes on, The fact that apple charges a premium for a alleged “BETTER” device is just a front now. Its a perception. Far from bitter, Just stating fact.

        ________________________________
        From: Disqus
        To: robt_1968@yahoo.com
        Sent: Friday, November 18, 2011 7:45 AM
        Subject: [techpinions] Re: Why iPhone Scarfs Up All the Profits

        Disqus generic email template

        Jfutral (unregistered) wrote, in response to YEs2u:
        If by “premium” you mean Apple doesn’t do “cheaply made crap”, you are correct. As for “over charge” you could probably make a case if people didn’t actually buy their products. But since that isn’t the case, well, now you just sound irrationally bitter.
        Joe
        Link to comment

        • Anonymous

          Being built at the same factory or company does not equate to being built the same or even similarly and by extrapolation does not mean costs are the same. In actuality, with the iPad and Macbook Air, it seems their costs are lower, thus their prices are lower than what any other company has been able to make so far (as they complain to Intel that they can’t compete with Apple unless Intel lowers their cpu price and no one has made a comparable tablet at the same price point.)

          4 trojans (not all of which are actually in the wild) vs Androids over 450% increase and growing malware threats. Hmm.

          How many nanos actually blew up?

          etc.,

          Never said Apple was perfect (no tech company is), just better.

          Just stating fact.

          Joe

          • Anonymous

            Look at a price of a Mac air….Look at the price of the same specs in pro. Why is the pro less for more? Also you avoided the subject of all the issues… Nice one….so with all those issues, trojans(Yes in another 3 years Apple will be the new Microsoft.) you can still say better? I say Hackintosh. Better, cheaper and faster. But it is.. EXACTLY as it is.. End of subject.

          • Anonymous

            Which “Pro”? Airs start at $999, Pros start at $1199. Unless you are creating your own reality again.

            “Hackintosh”, huh? Then apparently you think the Mac OS is better, else why bother? So there is something from Apple you also think is better.

            Didn’t avoid any subject. I addressed all in “Never said Apple was perfect (no tech company is), just better.” Apparently you think so, too.

            Joe

          • Anonymous

            Stay with me.. Pro at the same specs….better price. At any rate. I mentioned Hackintosh, because IF, I was ever going to buy one, thats the way I would go or I would go to craigslist and get one that way so I could avoid the bloated price tag. And better, that still is in perspective. I dont think they are better, nor do I think Pcs are better. It comes down to what you like and how smart you are and going off what you know as opposed to a company telling what they want you to know. As far as viruses and trojans. A well known hacker working for the FBI said, Apple has always been easier to hack, just not enough of them to make it a want. Also he said Microsoft was better about fixing security holes faster then Apple was. Apple always denies things at first then they come out months later and admit it. Also, for android, the malware that does exist. As long as you are not rooted, they cant get to the core of the OS. There are 20,00 known viruses for apple, 4 new trojans, trust me, it’s only going to get worse. Im done big guy, Enjoy your Apple.

          • Anonymous

            Stay with me here, Pros and Airs don’t have the same specs. Again, you present a new reality/perception.

            And over 90% of those “known viruses” (most of which never made it into the wild) are for OS9 and older, not OS X. So again, you create your own reality from your perception. You really should give this up. Really, try reading _current_ articles.

            But one thing you say is absolutely spot on. People buy what works best for them. Not everyone is like you and me and even want to build a computer from scratch or even upgrade the memory. Heck, most people don’t even _need_ to upgrade the memory. Just like with cars, some people just want to buy the new car and drive it off the lot. They don’t want to build it or any part of it, just drive it.

            And there is nothing wrong with that.

            Joe

  • Anonymous

    Good post Steve. This also speaks to the advantage that Apple has using their own retail, as well as having a more focused channel strategy. Samsung has to make so many devices because they actually sell products to carriers. They know that not all products they make will be carried by all the carriers so they have to create a large menu to allow the channel to pick and choose.

    The complexities of having a carrier only strategy to sell devices is very difficult to compete with Apple especially in the way of revenue. This is not going to change any time soon. Apple retail is one of the smartest things they did in order to protect margins and compete.

  • TF

    It helps, as you’ve pointed out before, if your small, focused product line is a luxury line, with the margins that tend to accompany that. It’s the combination that works so well.

    • Jfutral

      Luxury, schmuxury. It helps if you make a product that a lot of people of all economic levels want.

      Joe

      • $390AShareIsTrulyExciting!}:-D

        How does it help Apple to cater to cheapskates? That’s like saying Mercedes-Benz should build cars that cost in the same price range as Kias. Apple uses high-quality parts and offers high-quality consumer support. Apple’s customer support is very good and good customer support is expensive.

        I’d never ask or expect Porsche to build some cheap car that I could afford because I know they’d have to make seriously poor compromises. It’s up to me to earn enough money to buy a Porsche Carrera GT. Just because I can’t afford a Porsche, I definitely don’t think their cars are overpriced nor do I hate the company for building cars with prices beyond my personal earning power.

        Apple builds products that fit it a smaller percentage of people that think the products are worth the extra cost. That’s Apple’s privilege as a company.

        • Jfutral

          I get what most people mean when they try to talk about Apple as a “luxury” brand. I just don’t think they are.

          First, I don’t equate luxury with quality. Jags are notoriously poorly engineered cars with a really bad history of reliability issues. While quality isn’t cheap, it does not equate to luxury. As for build quality, I would put just about any of the big 4 Japanese cars up against just about any Mercedes C class.

          Second, luxury prices really are out of reach for most economic levels. Apple products are not, as is clearly evidenced by their ability to sell large quantities of every product they make faster than they can make them. If only the rich could afford them, net sales wouldn’t be as high as they are, much less gross sales. Luxury brands often make more profit per product (but not always), but they don’t often make more total than less costly brands.

          And quite frankly, even with Macs, it isn’t hard to find computers that cost more. In tablets, Apple has had a huge price advantage. The only way competitors could compete was by skimping on features or materials (or have someone else provide the OS for free). Same with the iPhone. Not all iPhone competitors are less expensive, but they are cheaper builds.

          Apple is a high quality brand with a sophisticated aesthetic that fits the function. But are they strictly a stereo-typical, exclusivity driven, luxury brand? The broad consumer base would indicate otherwise.

          Really, the key to scarfing up profits is making a really great product that a lot of people get excited about and are willing and able to pay for.

          Joe

          • Anonymous

            Again.. its a perceived assumption. Apple makes money from product being minimalist. There’s not much to them so their is less manufacturing. Also, they charge the price because people are willing to pay that price for what they believe is “BETTER.” I can slap a Apple sticker on a HP laptop with the apple os(Hackintosh) and sell it as such, a Apple fan would think it was the best device ever. Lets not forget all the issues apple has had with the ipod nanos, Apple Time capsule, Macbook airs, Iphone4 and now the Iphone 4s. As an example. If I was to tell everyone that Jumped on the ipad band wagon, if I were to tell them they will not be able to view flash based sites and that once their ipad is filled with data, they can not add a micro sd card to back up. Im willing to bet sales would drastically drop.
            Its about being fully informed…which customers are not.

          • Anonymous

            Your Flash argument is fairly baseless as it seems to be mentioned in just about every review I’ve read. And all the iPad owners I know are fully aware of this and yet continue to prefer their ipad to other mobile devices. I don’t know a single ipad owner who isn’t fully informed (as much as one can be fully informed about anything) of what their iPad can and cannot do, at least in regard to Flash.

            Even Adobe has given up mobile Flash development. But maybe you weren’t informed about that, yet.

            You do know that “perception is reality” is a scientific principle, right? Even your own perceptions of Apple have created your own reality.

            Joe

          • Anonymous

            Actually I have walked into Apple stores and best buy, Girlfriends Iphone keeps taking a dive, and I have seen people getting ready to buy Ipads, I walked up and just ask if they knew that once they filled it up with space that there was no SD card and they have to off load it and also did they know if there was no flash on it. After telling them that they said they had no idea and wouldn’t buy because of that. I have also spoken with employees(MY friend works at best buy as well) and they say sometimes they get back as many as 50 a month because people didn’t know they could not view flash or they couldn’t up grade the memory. I admit, I bought a ipad…(Could not resist, 64gb Ipad brand new for $400)But I also got a New a Asus Transformer Prime(replacement for my Motorola XOOM) I prefer the prime because it enables me to view flash based sites I like, Add storage if need be and mark that storage as whatever. But Apple people are drones, they just listen to what Apple tells them as opposed to what they should be informed of.
            It all comes to this. Apple tells you what you want and need rather then listening to what people want and need. People fall for this and is great for Apple. You know like when the iphone 4 had issues and steve said ‘You’re holding it wrong” All the apple people were like”Duh, okay” and the pc people thought it was a crock. I want full control, I want to be abe to do things the way I want and want to view the things the way I want them

          • Anonymous

            Did you also inform those people that most Flash is used for ads? Did you also inform them that Adobe dumped mobile Flash because they can’t get it to work well on mobile devices and even Adobe is focusing, instead, on HTML5, where Apple is one of the leading supporters? Did you also tell them about all the Flash malware, or Flash zombie cookies?

            Didn’t think so. So much for “fully informed”.

            Joe

          • Anonymous

            I read articles all the time, like the recent ios 5.0 had some serious issues, now the new ios 5.0.1, that I experienced along with thousands of other people, crashing safari, battery life, etc. And okay, so I shouldn’t have said “Same specs” for the same price you can get more. So its a front, “Look at this, slower pc, thinner beautiful, but it will cost you more.” Listen, got to run. enjoy your Apple, I have to go help my girlfriend, she lost all of her contacts and everything from her 3Gs after the upgrade to IOS 5.0, Told her not to upgrade… But yo know how Apple people are. They only liste to Apple.

          • Anonymous

            That’s interesting. My battery life got better. Couldn’t figure out why I waited so long. I guess it goes to show _anecdotal_ is just that. Enjoy your mis-perceptions!

            Joe

          • Anonymous

            This is the year 2000 do a google search for Ios 5 issues and check the apple boards themselves. There are thousands of people having these issues. I too have Apple friends that will lie about issues, when in fact they are having issues. That is what apple fans do. Stop doing the Apple thing and trying to deny reality. Perhaps you are commenting wrong? I mean holding your phone wrong, oh wait no that was, “Don’t like the wireless on the ipad, get closer to the router.” Just like the fix for the ipads wireless, a work around was to turn off auto brightness and turn the brightness to the middle setting in order to have a good wireless connection. Everything is exactly as it is…..believe your own false beliefs and let Apple tell you what to think apparently they have the jedi mind trick going. Also, I remember commenting about when Apple said “You dont need multitasking.” But yet they came out with it anyways. Who are they, as a company to tell people what they do and dont need…. its funny really….the force is strong with Apple…. I guess……

          • Anonymous

            Again, because you didn’t seem to get it the first time, never said Apple was perfect, just better. That doesn’t mean there won’t be issues. This is technology. It comes with the territory. But not everyone has your issues. Like the need to belittle everyone else who doesn’t think like you do and your own mis-perceptions.

            Joe

          • Anonymous

            Either way, 75% of the internet is based off of flash. FLASH BASED SITES. HTML5 will not be fully ratified till 2020. So, in other words there really is not a set standard as of yet. But even without the flash issue, they wanted UNLIMTED storage, trust me Apples icloud will get hacked. Just as Valves has, just as sony has. I informed them of this and they wanted to control their own storage without having to pay extra… so yes, they were fully informed…..Have fun…This conversation is running long and over rated.. You said your peace and I have said mine. I am sorry if I offended you, you seem angry……Just so you know…. I have a macbook pro that I bought off craigs list for $500…17″ 2.4ghz, I also have windows on it. I also have an Ipad…. I prefer my freedom of choice and being able to do what, when, how and where I want to. IOS, Snow leopard, Lion, are great OS’s, dont get me wrong. But I want freedom of choice and I would never pay that kind of money that Apple charges. I have many sites I go to that can not be viewed on my ipad….So I use my android tablet. Really, I bought the Ipad because I was looking for a IPOD for my car… the ipad was such I good deal I would be stupid not to buy it. So you can argue with yourself… I have said my peace as you have said yours. I wish you the best.. Merry Christmas… and Happy New year.

          • Anonymous

            75% of that 75% is ads. Still have yet to have an issue with Flash sites on my iPad and since I started running Clicktoflash on my desktop and laptop, websurfing has never been smoother.

            Look, I could care less what computer brand you use. Just because not everyone agrees with you doesn’t mean they are idiots. Why you need to find intellectual affirmation by wanting to make everyone else out to be stooges because they don’t do things like you do or want the same thing you do is beyond me. Don’t take other people’s choices so personally. Just because they don’t like the same things doesn’t mean they or you are stupid. I don’t know why you need them to be.

            Joe

  • John

    Having only a few models makes it easier to choose Apple. When there are too many choices people can’t decide what to do.

    • Anonymous

      I want more choices….Im a bang for buck guy.

  • Anonymous

    Focus, focus, focus.
    This limited lineup helps Apple focus its development costs, manufacturing costs, component costs, distribution costs and marketing costs.

    So the consumer actually gets the most bang for the proverbial buck instead buying poor research, overlapping planning, overpriced logistics, overburdened trouble shooting/support and scattershot marketing.

    Just look at Nokia. At one point they had over 200 current phones listed on Cnet.

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