Fallacy of volume and revenue: The iPhone difference

From Microsoft to Dell to Motorola, 2008 has been a very burdensome year for number-chasers. For those who find value in and thus only pay attention to market share, units shipped and revenue, the argument for volume is becoming increasingly more difficult to justify.

In What Sony Ericsson Must Do To Stage a Comeback, Jose Fermoso includes an interesting table:

sales.png

In any argument advanced to show why, for instance, Nokia is trailing Apple in the smartphone market, some will always counter by pointing to Nokia’s volume dominance in units shipped, which dwarfs Apple’s by a factor of 25X. Nokia’s revenue is about 1.5X higher than Apple’s as well. What’s more interesting for shareholders, however, is the fact that Apple’s profit is more than 2X over Nokia’s.

Indeed, for every phone sold in this scenario, Apple makes over 55X in profits compared to Nokia:

profits.png

Make it up in volume?

The corollary to units shipped is often the notion of a platform: the larger it is, the more lucrative it usually gets. Once a product gains network effect, it often dominates a market and thus is able to siphon off most of the revenue in that market. Revenue without profit, unfortunately, is not very meaningful.

Motorola, for instance, has shipped an awful lot of RAZRs but its mobile division has been at the brink of going under. In the table above, Sony Ericsson is shown to lose over $10 for each phone sold. No wonder Sony is slated to become one of the casualties of the contraction in the cellphone market. Nokia is the volume leader, but its per-phone profit is a meager $6.64, versus Apple’s $369.27.

Surely, products without significant market share will fail to create an ecosystem necessary to garner mind share, developer interest and, ultimately, users. Android is not yet a significant threat to iPhone because it doesn’t nearly have a comparable ecosystem and because it doesn’t have a significant ecosystem it hasn’t been able to attract enough developers to create one. Google may be able to fund Android’s growing pains, but a company like Palm cannot do the same for its upcoming Pre.

Profits matter

Pre has to compete directly against the iPhone. But while Palm continues to spiral downward financially quarter-by-quarter, its competitor Apple is very profitable, likely to have about $30 billion in cash by the time the first Pre is sold.

The most amazing trick Apple has performed over the last six years has been the unflinching fiscal discipline to introduce new products into new markets to establish new platforms while maintaining remarkably profitable margins. Apple hasn’t carved out 3/4 of the digital music market by inundating it with cheap devices. Neither has it elected to chase after market share by peddling $49 “iPhone nanos” at Radio Shack. As can be seen above, the iPhone is an extremely profitable product which fuels its own R&D that keeps it a generation ahead of its potential rivals. In iPhone charts, third parties see not just the number of units sold but more importantly, a competently managed, profitable, growing ecosystem with which they can reliably associate, whereas any discussion of Pre’s prospects must necessarily include Palm’s dismal financial outlook.

Therein lies the magic of the iPhone numbers.

58 thoughts on “Fallacy of volume and revenue: The iPhone difference

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  2. Post mortem:

    I’m well aware I pulled a George Bush when bringing up the Microsoft “salvation” of Apple. There’s a good chance that I mistakenly bought into press propaganda at the time and stored it rather than doing my homework. Mea culpa– and at least I can admit to an error, “fecklessly” or otherwise, unlike the hateful little Master Baiters here.

    It’s obvious that Apple’s approach continues to work in spite of a sour economy, and I’m VERY impressed. Apple and RIM together have stolen the US smartphone market from Nokia in toto and are making more money on less product. That’s highly admirable.

    I had hope for my former employer (and when I say I was let go without cause, Victor, take it to the bank) but that hope has all but faded. Nokia had the ball and fumbled. They have apparently lost the advantage of that global market share and may not be able to leverage it after all.

    This is a sad lesson many companies SHOULD learn from the failure of others but do not. I watched Stanley Tools piss away market share and WILLINGLY give the high end to Snap-on. Corporate suicide, because others began chipping away at the low end and now Stanley is not the brand they were even a decade ago.

    Nokia is following suit, allowing a fatal sense of superiority to possibly doom it. Oddly, Apple suffers a similar arrogance but has channeled it productively.

    Highly focused wins the race. I’ll concede it.

    I just hope the angry turks in the peanut gallery are gainfully employed, growing up and enjoying life. ;)

    • I didn’t exclude myself because, despite my best efforts to acquire accurate information on which to base my opinions, I have limited time and interest, and when pompous know-it-all asses try to pretend that their opinions are infallible, I just shake my head at the individual and collective stupidity of the human race (myself included).

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  5. Victor Panlilio: “…Apple should enter the netbook market, but is that a market Apple wants to be in?”

    Jobs & Co usually don’t “enter into markets” as, say, Dell would. They consider a nascent market and reinvent a significant portion of it by rewriting the rules.

    The canonical example is, of course, the iPhone. There was a smartphone market before the iPhone to be sure. But the iPhone created a converged device that none of the incumbents could compete with. Under Apple’s new rules, if the device doesn’t have a desktop-level web browser, touch, polished media player, app store, etc., it just doesn’t matter any longer.

    Apple’s genius, as you point out, has been its ability to do this with awesome fiscal efficiency so that its competitors (whether for iPods or iPhones) find it very difficult to match. Apple has the volume and the cash to lock up significant component reservoirs at very favorable terms that Palm or Dell can’t really pull off.

  6. Disclaimer: I own an iPhone 3G, but no stock in either Apple or Nokia. Prior to my iPhone 3G, I used an ancient Motorola T731c flip phone for 5+ years and never used a mobile for anything but phoning. Now, if a better pocket computer for my particular use case comes along and the TCO is acceptable, I’ll switch.

    Randall Arnold may have said so in a post that I missed, but he used to work for Nokia until he was recently “let go” — which may be why he’s applied for a position at Apple. As far as “reinventing” goes, he typifies the Internet community’s propensity for spouting opinions, not all of which are based on accurate information (I am using understatement for sarcastic effect here, and I’m not exempting myself). When Randall is called on his faulty recollection of Microsoft’s $150M investment in Apple, he fecklessly tries to evade the peanut gallery, which for its part seems to assume Apple can’t miscalculate, either. Obviously, it can, but having a $28+ billion war chest gives it some margin for error. I’ve often wondered why Apple is amassing so much cash — obviously, Tim Cook’s trying to outmaneuver competition for the best component pricing and volume manufacturing contracts he can get. With whom would you rather do business, someone who has no debt and is bulging with cash and can pay you straight up, or someone who has to talk to their bankers about extending their business line of credit? Microsoft is able to fund so many underperforming businesses because it still makes so much money from Windows and Office. As Apple’s cash hoard grows, they might be able to enter and compete in new markets through innovative products without resorting to the tactics of our favorite predatory monopolist. Will Apple’s brand strength increase, or will it be diluted by entry into less-developed markets? Lots of people seem to think Apple should enter the netbook market, but is that a market Apple wants to be in? Does it fit their long-term strategy? How many different products do you need to have in order to adequately serve all the markets you want to compete in? And so on.

  7. Here’s some more food for thought about Nokia from their own quarterly reports:

    Nokia share of converged devices 4Q04: 63%
    Nokia share of converged devices 4Q08: 31%
    – Market grew from 8M to 48M, Nokia grew from 5M to 15M.

    Total Nseries/Eseries sales in 2Q07 (prior to iPhone): 11M
    Total Nseries/Eseries sales in 4Q08: 11M
    – Nokia shows no smartphone growth.

    Total Nseries/Eseries sales in 4Q07: ~13.5 million
    Total Nseries/Eseries sales in 4Q08: 11 million
    – Nokia smartphone sales trending downward (while industry grew from 40M to 48M).

    Total Nseries/Eseries sales from 3Q07-2Q08: 48M
    Total original iPhone sales from 3Q07-2Q08: 6.1M
    vs
    Total Nseries/Eseries sales in 2H08: 23M
    Total iPhone 3G sales in 2H08: 11.3M
    – iPhone is rapidly closing gap.

    Nokia better be reinventing themselves, otherwise, they’ll wind up like Dell, selling only to the low end.

  8. @ jural:

    feeding the troll .. yep, my bad ;-)

    at least Randall has been forced to admit that he is indeed a “fool” – which is of course stating the obvious.

    I think blog posters should be required to take an SAT/history/IQ test before being allowed to comment about facts or logic.

  9. Apple creates ecosystems.
    This is very difficult to compete against.

    The iPhone ecosystem includes the iPods (and iPod Touch), Macs (which can run Windows and Linux and Mac OS X simultaneously), iTunes, the iTunes Store (for music, TV, movies, PodCasts), Mac OS X (in various platform versions), Apple TV, and all its universe of 3rd party accessories.

    No other product attracts so many 3rd party accessories.

  10. JDT: I have yet to see a pissing contest actually won. Usually one contestant gives up in frustration and beats the piss out of the other guy, rendering him weaponless. I never get that far. I run out of piss too early. Virtual kidney stones keep blocking my virtual ureter.

    @zahadam: oh, I have more than a minimal understanding of the subject here. Like a few others you leap far too soon in judgment. I was a bit flippant on the MS-Apple cash infusion issue but it was far more from accelerating Alzheimer’s than inherent stupidity or some self-destructive agenda. Although one has to wonder who is more foolish: the fool, or the one who argues with him?

    I get the sad feeling there is no humor on Planet Apple. That is frustrating. On the extreme long shot that I defy Sir Quix’s pessimistic assessment of my chances I would hate to go to work for Apple and see that there are no LOLs. That would suck. Crap, I could get that at Microsoft.

  11. @ randeall:

    “If Microsoft had not come to their aid several years ago there might not have ever been an iPhone”

    wrong.

    FUD!

    as you may have found out by now, it is a canard to say that msft investment of a niggardly $150M in 1997 “saved” apple from imminent financial collapse.

    1) apple was entirely solvent at the time; and it had $2B in cash in the bank with almost no long-term debt; i held $1B+ of equity in ARM (which it slowly sold off over the next 3 years to help finance its come-back … ironically ARM was co-founded by apple a decade earlier to create low-power CPU’s for its ground-breaking PDA, the newton).

    2) apple had just finished the first stage in its turnaround – so was very soon about to be cash-flow positive – by fixing its disaster inventory disaster, which was accomplished by consolidating its product mix (to eliminate the ridiculously useless over-lap; and also by rationalizing its supply-chain. The result was that apple was quickly on its way to achieving the highest JIT performance in the world! to wit one-half day of inventory!

    3) apple had agreed to settle its litigation against msft for theft of intellectual property viz the quicktime-for-windows code that was laundered by Intel through a subcontractor to allow msft to close the performance gap created for msft’s ‘video-for-windows’ as compared to quicktime-for-windows ….

    msft was poised to lose BILLIONS in court for the damage done to apple for stealing crucial parts of its Quicktime video code – and it was for this reason that msft wanted to settle on the cheap with apple by creating a PR move that would help msft with its anti-trsut problems brewing at the DOJ (ie killing two birds with one stone).

    in fact msft was so keen to avoid losing in court that it also applied some counter-leverage: msft threatened to discontinue to offer its Office suite for mac unless apple settled the suit – and of course msft put PR spin on this by positioning its 5 year guarantee as a vote of confidence in a beleaguered competitor (when in fact it was just part of a hardball negotiating tactic).

    Therefore, if randall had even a minimal understanding of history then he would not make himself look like such an ignorant fool by just making up whatever crazy shit suited his silly point.

    As for Randall’s larger point – about nokia reinventing itself … that is very much an open question. The symbian platform is technically quite weak but Nokia does have enough resources to suffer through hard work of a renaissance – if there were anyone at nokia who has actually had any vision! However, right now there doesnt seem to be very much in the nokia pipeline.

    However, Nokia’s best option is probably to buy Palm – the PRE has some real chops! – just as msft bought Sidekick in order to invigorate a large company that was stale & clueless by bringing in a small company that actually understood the marketplace.

  12. @Randall Arnold
    ‘I suspect you may be so stuck on the defensive that you can’t consider alternatives to your position, so you’re going to keep protesting until I give up or go away”

    Oh wait…

  13. Regarding iPhone margins …FWIW here are my “back of the napkin” calculations using iSuppli numbers for cost of goods (COG) …
    iPhone 3G 8 gig model COG tallies up $174.33 (give or take) + about $50 in royalties = $224.33 in costs.
    iPhone 3G 16 gig model COG is about $20 more than the 8 gig model or $244.33

    Apple is selling the iPhone to carriers for about $500 to $550. The retail price is $199 or $299 (knock off a couple of bucks if sold through BB or WalMart).
    That makes for healthy margins…
    8 gig iPhone
    Revenue = $499 ($199 + $300 carrier subsidy)
    COG = $224.33 (materials + royalties)
    Gross = $274.67
    $275/$499 = 55% margin

    16 gig iPhone
    Revenue = $599 ($299 + $300 carrier subsidy)
    COG = $244.33 (materials + royalties)
    Gross = $354.67
    $355/$599 = 59% margin

  14. As others have noted, the $1.6B is for all of Apple, not just the iPhone.

    Let’s try to calculate the real figures:

    Apple shipped 4.4M iPhones last quarter.
    Apple sold 4.65M iPhones last quarter, as they drew down inventories by 250k. This is from the conference call.

    Average revenue per iPhone is about $600.
    Total revenue per iPhone is $2.8B.

    Gross margins on iPhone are about 60%.
    Gross income on iPhone is $1.7B.

    Apple’s marginal tax rate is 30%.
    Net income on iPhone is $1.2B.

    So, while Kontra got the revenue and profit figures wrong by using Apple’s total revenue and profit, he also only used GAAP figures, which don’t include the deferred revenues from the iPhone. The above calculations are based upon the non-GAAP figures that Apple has now included the last two quarters’ filings. Anyone can look them up and calculate it themselves.

    As for the MS investment in Apple, that’s an internet myth that the nominal amount was necessary to save Apple. Sure, Apple wasn’t healthy, kind of somewhere between Dell and Palm today, in terms of health.

    As for Nokia, I’ve been to China alot, and Nokia is everywhere, but I do wonder if they are sacrificing profit for share. I mean, if China had anti-dumping laws, I think Nokia would be in trouble. Nokia is pulling out of Japan. Noone seems to make a peep about that. I mean, if Japan is the global cell market tech leader, isn’t it important to have a presence there, to show some tech leadership? Nokia is nowhere in the US market. They dominate Europe and the BRIC countries. But we know those BRIC countries are as aspirational as others. Dominating the low-end is no guarantee that consumers will still buy Nokia when they graduate to higher end phones. Are there studies that show buying a low-end Nokia will help sell you a high-end S60 based Nokia? I had a low-end Nokia and there was not even a moments hesitation when the iPhone was released. I just don’t see how Nokia’s low-end intro strategy in the BRIC countries is going to succeed.

    Is Symbian really capable to run a high-end smartphone? If so, why didn’t they use Symbian for its N8x0 series of tablets? Aren’t they using Linux linmoe?

  15. It is possible that Apple points to a different paradigm where one wishes to own a few good products rather than a closet full of junk. The current recession may even have the effect of encouraging people to reconsider spending habits. People’s closets are full of cheap crap, as are their attics, their basements and their garages. So many people have filled up their residents with stuff and have to now rent storage space for the over flow, that storage rental places have popped up like fast food restaurants once did. As we move to a greener economy, we may find it necessary to own less, but own quality, and companies that know how to do that may be the ones to survive.

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  17. I am not defending anything, nor am I attacking either. Notice that in no way did I insulted or ridiculed you. I did not see you as attacking me either. I was arguing my case, which as you point out, is probably too one-sided to be objective because I do assume Nokia’s missteps are at least long-term, and they may well be not. As you correctly pointed out, I don’t do as much research on Nokia as I do Apple.
    Not sure what you mean by “that big a dog in the hunt any more” but I suspect that if I have to ask, I have one. ;)
    Also, how does one actually win a pissing contest? Is it distance? Is it time? Is it color and consistency?

  18. JDT you’re splitting hairs vis-a-vis my Microsoft comment. Looking for a win on that one?

    As for the rest, the answers to your questions are already in the content of what I’ve already said. The gist is that you see Apple’s potential one way based on your experience and analysis, I see it another based on mine. You think Apple can crack or create smart phone markets faster than Nokia can. I am highly doubtful. You assume Nokia’s missteps are permanent. I believe otherwise, and that they are short term consequences of a long term startegy.

    I suspect you may be so stuck on the defensive that you can’t consider alternatives to your position, so you’re going to keep protesting until I give up or go away (FYI, I didn’t start out here on the attack– some just leapt to the wrong conclusion of my motives and I responded accordingly).

    Fair enough. I don’t have that big a dog in the hunt any more. I’ll bow out and let the others continue the ridicule in absentia. Far be it from me to deny anyone their right to claim a win in an internet pissing contest. We all know how important it can be. ; )

  19. Randall Arnold -
    I agree that Nokia may dominate the lower end of these markets with cheaper phones and then move to higher-end phones like smartphones. At the same time though, consider that Apple may move aggressively into these territories if a market develops for smartphones. Then, it will not necessarily be a market segment that Nokia controls, but rather one where competition with other manufacturers is strong.
    Consider as well this: the iPhone is a great source of cash for Apple. This in turn allows the investment of cash into more R&D to reduce costs and expand the platform, making the iPhone a richer and more desired product. If we assume that the same percentage of earnings of both companies are going to R&D, and Apple is making more money, then all things being equal and staying the same, we can assume that Apple’s R&D will surpass Nokia’s and create products and platforms that are more profitable and appealing for whatever segment they choose to compete in. If that is the case, then Apple will likely dominate those markets as well.
    As you say, time will tell. But given the current and close future economic picture, and given the fact that Apple is making more money in the cell phone business than Nokia, do you really think Nokia will dominate smartphone markets in several years?

  20. Randall Arnold Says: “I’ll admit I might well have overestimated the impact Microsoft’s investment in Apple had but that’s the only thing I’ve presented as fact that can be called into question.”

    No, you did not overestimate or might have overestimated. You were flat out wrong because you did not do research. But that’s fine. We have all been wrong before, even after doing research.
    I don’t think you presented many other facts. What you did present, which you say yourself, are predictions. But these predictions are based on analysis. And I question that analysis.
    “My bet is that the future smartphone market will belong to Nokia in India, China and Africa.” Why? My point was that in the smartphone market, Apple kicked butt and will continue to improve upon that. With OSX, the sky is the limit. Nokia, on the other hand, is not innovating fast enough. Nokia’s had years of practice and here a computer company entered the market and pretty much reinvented the smartphone and is now the standard used to measure other smartphones. So if Nokia is not reinventing itself fast enough, there is great demand for iPhones in India, China, and Africa, and Apple keeps improving upon the iPhone, how is Nokia going to dominate these markets? And if Nokia moves outside the smartphone business, how is it going to dominate smartphone markets?

  21. JDT: the problem you face here is wanting to post as an authority of sorts on a handful of companies but while it appears you do know Apple well you would have done better to update yourself on Nokia prior to posting.

    Nokia was in other industries prior to mobile phones… including rubber boots, tires and paper. In 2007 the company started yet another reinvention, this time to move more into services. The focus is much more on developing regions than the markets Apple is currently thriving in. Nokia has around 40% of the global market. While you try to downplay that fact, Nokia has done very well with their high-volume, low-margin model. Admittedly, not so well lately with high end devices.

    But the goal is to saturate GROWING markets where potential is key. Get low-cost phones with advanced features into the hands of developing regions and you have a built-in conveyance for services like ovi.com. Granted, the services are immature by US standards but the focus again is long-term. By the time India, China and Africa are ready, ovi should be too.

    The question here is how much of those markets Apple can expect to gain. The surface analysis says they may do well but those intimately familiar with these markets know that what worked in the US and even Europe is unlikely to work in other regions. More than any company in mobile phones other than perhaps HTC and Huawei, Nokia understands these markets– which are generally a long way from being ready for Apple’s offerings.

    Apple’s iPhone is a brilliant device, and deserved of praise– I am simply being objective when I say that it may very well be analagous to a supernova. But I could be wrong– Apple may well be developing low margin entry devices for those emerging markets as we speak. Then again, that would put them right alongside Nokia (et al) eventually. ; )

  22. “Especially since, as a non-Apple basher, I just applied for a position with the company.”

    Based on your lack of fundamental understanding regarding what it is exactly that makes Apple “tick,” the prognosis is not good.

    But best of luck to you anyway.

  23. “Careful with those ASSumptions, folks! They’ll bite ya in the butt every time.”

    Indeed they will, Randall. Indeed they will.

  24. What an ironic post, Quix! Thanks for the continued humor.

    I find it interesting and amusing what hyperbole and kneejerk assumptions erupted after my little post. I’ll admit I might well have overestimated the impact Microsoft’s investment in Apple had but that’s the only thing I’ve presented as fact that can be called into question.

    What defensive fanatics like you overlook is that I included disclaimers in my comments such as “time will tell”. For all I know Apple may be the first consumer device manufacturer in history to overcome such time-proven tenets as the Law of Diminishing Returns. That would of course be based on their successful business model which, contrary to your ignorant blubbering, I do understand very well. More power to them! Especially since, as a non-Apple basher, I just applied for a position with the company.

    Careful with those ASSumptions, folks! They’ll bite ya in the butt every time.

  25. “my point was that Apple’s lovely margins now are very likely an unsustainable blip” – Randall

    Ah Randall, people (who hate Apple, I wager) have been shouting this from the rooftops regarding the iPod for years as well. “Apple can’t keep making money on these – we’ll be buying DAPs at the grocery checkout for $10 soon. They’ll be a commodity item in no time. Apple is DOOOOMED!”

    Obviously, such people have been wrong.

    Where Apple has excelled is in consistently providing PREMIUM-PRICED PRODUCTS that people are WILLING TO PAY FOR. I’m sorry you fail to grasp the nature of that particular business model. Hey, best wishes to companies who want to stake their fortune on $10 phones that run some garbage open-source mobile OS that people in Africa will be interested in. My prediction? Such companies won’t be around too long.

    Keep grasping at straws…

  26. Randall Arnold: “Oh, and you completely missed my point about Nokia reinventing itself. You disingenuously focused only on new phones.

    Ironically, this was after you suggested I do some research. Here’s my advice back: eat your own dog food. Find out what I meant by reinvention.”

    Sorry I missed your point. I assumed since the conversation is on mobile phones, that the “reinvention” is on new mobile phones, not on other products Nokia might make. And what research exactly are you talking about I should do? I pointed out specifically where you missed your research, where do I have to do mine, on what you meant by “reinvention”? Whould you like to elaborate on that please?

  27. A couple of flaws, that some have pointed out but I’ll summarize anyway. The $1.6 billion profit is for all of Apple so it includes iPods/iPhone, etc. For example in Q1 the GAPP (mean the revenue isn’t deferred) revenue for the iPhone is $1.247 billion.

    There’s no easy way to know how profitable that is compared other branches but you can get some idea because the only things that are effected by using the non-GAPP measures are the iPhone (and AppleTV but that’s small potatoes)

    So, Apple’s non-GAPP profit was 2.3 billion. Thus, not accounting for the iPhone over 8 quarters increased the profit 700 million. They sold 4.3 million iphones. I think this means that the iPhone generated in one quarter with 4.364 million units sold $800 million of profit, or ~$183 per phone.

    Still more than the others, way less than your estimate. Someone, check my math.

  28. Apple does not get subscription services any more. Apple does get a big upfront lump sum payment from AT&T for each iPhone sold.

  29. Give it up, Quix. Winbot? Not even close. My most recent escapades have been supporting Linux. You also totally missed the point about Nokia’s ostensible strategy. But hey, you get points for being funny as hell.

  30. They receive money from at&t from subscription royalties. I believe part of it is upfront when the phone is activated. They also receive money from app/music/video sales which they may be averaging out. Not sure about the itunes sales though. Maybe that is reported seperately. Anyone know for sure?

  31. The more I think about it, your whole argument is really just about market share and thus basically ignores the entire premise of the article.

    This is as if when faced with the big reveal that the “Emperor has no clothes,” your reaction is to talk about how *your* invisible finery is still fabulous, instead of just realising that there is really no such thing.

  32. @ Randall Arnold:

    Even if we ignore the factual errors in your post, you are essentially arguing the exact opposite of the articles main thesis. I don’t see how you are offering anything to back that up either.

    The whole point of the article is that market share does not necessarily equal profitability, yet you disagree because (paraphrased) Nokia controls the low end and will thus conquer the emerging third world smart-phone market?

    Even if you are correct about the low end of the third world market, you provided no indication as to how this will translate to them owning the high end of the same market (your prediction). Why couldn’t Nokia end up “king” of the crap flip-phone in those areas and Apple still be in charge of the high end of the same market? Seems quite possible to me.

  33. When will people figure out that market share has nothing necessarily to do with profits. Look at Chevrolet and BMW. The entire tech industry thinks bigger must be better, because of the luck Microsoft had and the bullying they did. What say you now? Microsoft is out of profitable ideas. They are on a slow ride to becoming inconsequential in the next five years. And we will all be better for it.

  34. “If Microsoft had not come to their aid several years ago there might not have ever been an iPhone.” – Randall

    Wow Randall, I can’t believe the Winbots are still regurgitating this completely bogus chestnut. I guess they need *something* to cling to in the days of their pending irrelevance. “Hey, *our side* saved Apple!” Hilarious. Talk about “blinders…” Allow me to mail you $20 so I can talk about how I “saved” you for the rest of my life, hmm?

    And regarding Nokia’s strategy to troll the bottom of the cell phone industry, hey, more power to them. I’d much rather be in Apple’s position of selling far fewer phones at far more $$$ per phone (not to mention a profitable ecosystem that is developing around their phone platform).

    Low-margin technology for the masses. Quantity at the expense of profit. Hmm, how well did that work for Dell, in the long run?

    Troll Different.

  35. In fact only about one sixteenth of last quarter’s iPhone revenue was accounted, so the corrected total profit from all sales, per iPhone is even higher at $530.

    The $369 per iPhone profit is actually more or less correct after deducting the profit from other activities, because the comparable Apple figure is the non-GAAP figure; the others don’t use subscription accounting.

  36. Oh, and you completely missed my point about Nokia reinventing itself. You disingenuously focused only on new phones.

    Ironically, this was after you suggested I do some research. Here’s my advice back: eat your own dog food. Find out what I meant by reinvention.

  37. Randall Arnold: “Those lauding Apple would do well to note their history and how close they have come to collapsing. If Microsoft had not come to their aid several years ago there might not have ever been an iPhone. Nokia on the other hand is a very old business that is highly successful at reinventing itself as needed. Just watch.”
    Microsoft did not come to Apple’s aid; research a bit. It was a deal made to end litigation. Apple was worth billions and Microsoft bought $150 Million in non-voting shares, a laughable amount of money for Apple back then and an investment that has made a lot of money for Microsoft. Microsoft did not save Apple at all.
    When the iPhone came out, it kicked the entire mobile industry’s butt and changed the smartphone game forever. Apple did reinvent the market. Two years later, all other mobile manufacturers are still trying to produce “iPhone killers”; nothing out there has come close yet. The Pre is the only legitimate competition I see and it isn’t even out yet, so we’ll have to see how it does in users’ hands. Just like with the iPod, Apple will keep innovating it’s very lucrative iPhone and keep competition scrambling to catch up. Or have you seen any real iPod killers yet?
    Nokia is already behind in reinventing itself. Thus far, the only true “iPhone killer” has been the iPhone 3G. Even if Nokia reinvents itself, it will be competing against an Apple that does not stay static but rather moves forward in innovation at a pace that can’t be matched by almost any other company. Not only that, but all the current iPhone customers will likely remain iPhone customers becuase they have spent time and even money on the apps from the AppStore. Many will migrate to iPhone and few will leave. Here is a hint on where the iPhone is going and how fast it can innovate to get there: it runs OSX!

  38. Knotra has a very valid point because the profits of the iPhones is spread over a 24 month period and what we are seeing is only the first 3 months of the profits, correct me if I am wrong.

  39. In several years, let’s revisit this subject and see how effective Apple winds up being in the developing regions where Nokia is currently king of the entry phone.

    Nokia does lag in innovation, but theirs is a long-term, big-picture strategy designed to grind down the opposition while cultivating new markets with the benefit of their number one production and logistics engines.

    My bet is that the future smartphone market will belong to Nokia in India, China and Africa. Time will tell. This prediction of course is predicated on Nokia staying in devices, which they may not.

    Those lauding Apple would do well to note their history and how close they have come to collapsing. If Microsoft had not come to their aid several years ago there might not have ever been an iPhone. Nokia on the other hand is a very old business that is highly successful at reinventing itself as needed. Just watch.

  40. Great analysis. I always enjoy reading your insights.

    The profits do speak to Mac sales and iPod sales. But where does one draw the line with the iPod? The iPod Touch uses most of the same technology as the iPhone. Nokia and Sony could also have made an MP3 player. They chose not to. The point is that Apple has an ecosystem, as pointed out in the article. That’s what separates them from the other players. Apple is diverse. They are firing on all cylinders and this one point can’t be stressed enough: they don’t enter a market unless they have a solid plan to make money…and a lot of it.

    This recession/depression is going to separate the wheat from the chaff. Apple is going to be one of the the last men standing as I see it.

  41. JT is partially correct actually.

    http://www.apple.com/pr/library/2009/01/21results.html

    “CUPERTINO, California—January 21, 2009—Apple® today announced financial results for its fiscal 2009 first quarter ended December 27, 2008. The Company posted record revenue of $10.17 billion and record net quarterly profit of $1.61 billion, or $1.78 per diluted share. ”

    That is for everything, not just phones.

    Therefore, ’369 USD profit for every phone shipped’ is technically correct but highly misleading. They didn’t make that much profit on each phone, because some of the profit came from macs and ipods etc… but they did make that much profit when divided by the number of phones they sold.

  42. Dude, in your ‘brilliant’ analysis, you forget to mention Apple sells things called macs and ipods, that contribute to its revenues and profits. If you want to compare, you need to compare phone revenues alone.

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