Why iPhone Scarfs Up All the Profits

on November 17, 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)