"First, most people don't pay that much for even the latest model iPhones, because of carrier subsidies. Second, Apple has expanded their reach into the low end market. You can now get a brand new iPhone for zero dollars, with a contract. Sure, it's an older model, but it's still an iPhone."
What you describe is US way of selling smart phone. But in other part of the world, consumer prefer to buy their own phone and go to whatever carrier they preferred. China Telecom which started to sell 4S in China on March 7 and they already start selling 4S unlock (with some free mobile minute throw into the deal). They call it "bare metal" sales.. Apparently Apple China online also sold out of 4S
agile-news.com
And the carrier model cut both ways. In each phone release, the manufacturer and the carrier get together and decide whether the carrier will sell the phone, how much the carrier will pay for the phone and how many unit they will get and at what time.. Manufacturer are guarantee the sales number and the price that they will get for each phone shipped. The primary reason that Apple is wildly profitable is that carrier view Iphone as a must have phone to bring in network traffic. So they are willing to pay the price that Apple ask for. Android phone, on the other hand, are not consider as must have, so they are in a tough bargaining position with the carrier and loss most of the time. Hence we see Android phone sold a lot cheaper than Iphone with similar spec. Sprint found out the hard way that having an Iphone on your network is not necessary a boom to the bottom line. They specific mentioned in 4Q11 earning..
informationweek.com
The fourth quarter of 2011 also marks the first time Sprint offered the Apple iPhone, and it sold 1.8 million of them. The high cost to subsidize the iPhone, however, contributed to Sprint's $1.3 billion shortfall.
Going forward, carrier are going to be a lot more careful about how many Iphone they will buy from Apple and at what price to closer match their demand that they see..Carrier has promotion on Iphone is not a good sign. It means that they have problem moving the phone at a higher price point and need to run continuous promotion to move the phone.. It is something to watch for.
At the end of the day, Apple deserve the high margin they receive up to now since every generation of Iphone has some must have features (4S - Siri and retina display is a must have in my book). But what is the must have in Iphone 5??? So far the rumor mill items of faster procesor, more memory, bigger screen, IOS 6 are all nice upgrade item but not must have items for consumer. Water proof, Iwallet, new touch screen allow thinner phone, much longer battery life (like 2 week stand by power), lighter weight, attractive redesign, higher screen resolution (if it can make a difference ala Ipad 3 vs ipad 1), and mush improved Siri may qualify for must have items. And the sad fact is that Apple is going to have to keep running ahead the pack in order to enjoy the fat margin. At some point, consumer will look at the list of feature and decide that they can skip one generation of phone and not to upgrade them and stretch the upgrade cycle from 1 year to 2 year to 4 years (like my wifey CEO dumb phone) and the fat margin will be gone. I expect Iphone 5 will be the last really fat margin product on the smartphone side. Apple can prove me wrong but it has to prove itself every year. |
