So when I say Apple won't have to reduce margins "materially," I mean they won't have to go from 50-60% to say, twenty or thirty percent. Earnings per share on the iPhone line are going to continue to increase, and for now, I believe the margins are safe.
Interesting debate going on here. Allen, you say that there will always be people willing to pay for the premium experience that Apple offers, but in this case, iPhone's premium experience is not being paid for by the ones who benefit from that experience. Apple is commanding a premium subsidy close to $400 per iPhone from AT&T and other carriers. I'm fairly certain that other carriers are paying subsidies closer to $200-250 on every other smartphone. I used to follow Palm and Motorola pretty closely, and at launch, both the Pre and Droid were generating roughly $425 ASP, well below Apple's ASP of nearly $600, and of course, end user pricing was the same.
Apple's market appeal is absolutely a factor in a carriers' decision to subsidize the iPhone more heavily than any other phone. Apple's headhunter tax only makes sense if it brings them a customer that they otherwise wouldn't get. If it ever gets to the point where a carrier can attract customers equally well with another phone (say Android or Windows 7), it no longer makes sense to pay more for the iPhone customer. |
