Apple sells fewer iPhones, but profits rise.

[79wjd]

11 minutes ago, RorzNZ said:

Well you are risking a lot of money! I always get a case. You could get the iPhone 8 if you wanted a smaller size tbh, if size is your only reason for upgrading - but I shouldn't judge, I'm upgrading to the X from a 7

The 8 has a much smaller screen though.

[abazigal]

9 hours ago, Sniperfox47 said:

Breaking news: If you charge a lot more for a product with a very slightly higher BOM cost, you'll make more profit off it!

 

In other news: The sky is still blue!

Simple economics suggests that if price rises, demand should fall in response. So it's not so straightforward to generalise that overall revenue will rise simply by increasing prices. You are betting that demand won't shift so much as a result. 

 

That Apple still sold a ton of iPhones despite its higher price suggests that there are many consumers who continue to be willing to pay the hefty premium for an iPhone. I think Apple is one of the few companies who can actually get away with this. 

[Sniperfox47]

2 hours ago, abazigal said:

Simple economics suggests that if price rises, demand should fall in response. So it's not so straightforward to generalise that overall revenue will rise simply by increasing prices. You are betting that demand won't shift so much as a result. 

 

That Apple still sold a ton of iPhones despite its higher price suggests that there are many consumers who continue to be willing to pay the hefty premium for an iPhone. I think Apple is one of the few companies who can actually get away with this. 

I never said that revenue would increase, just profit per unit. Apple could probably charge $1500 for a phone and still sell enough to justify it realistically. Fact of the matter is that for a lot of the people who buy iPhones, there's no consideration that there even may be other options.

 

Let's be perfectly honest, free market theory doesn't actually work in the real world, especially in the modern age of "manufacturable demand" (i.e. manipulative marketing). The constraints of supply and demand fall off when you can manipulate both sides of the equation, and who's better at that than Apple?

[DontPeek]

On 2/2/2018 at 6:40 AM, Jamiec1130 said:

I still use a Samsung Galaxy S4 daily, and it's nearly 5 years old.

I just got rid of my S4 a few months ago. Upgrades to a OnePlus 3T. While I enjoy the larger screen and snappier performance, it wasn't some groundbreaking change. Honestly the biggest change was the fingerprint reader. I just don't find the phone market that compelling. Maybe if I took more pictures I would appreciate things like dual cameras more?

[Commodus]

50 minutes ago, DontPeek said:

I just got rid of my S4 a few months ago. Upgrades to a OnePlus 3T. While I enjoy the larger screen and snappier performance, it wasn't some groundbreaking change. Honestly the biggest change was the fingerprint reader. I just don't find the phone market that compelling. Maybe if I took more pictures I would appreciate things like dual cameras more?

I don't think you're alone, but this really just illustrates the spectrum of the smartphone market: it has to cover 'casual' users like you, who don't see a need to upgrade unless there are fundamental gains in obvious areas like screen size and speed, as well as enthusiasts of seemingly every stripe.  I upgrade every couple of years because the improvements in cameras, performance and other features are usually large enough that I'd appreciate them, but I know many people aren't like that.

[79wjd]

1 hour ago, Commodus said:

I don't think you're alone, but this really just illustrates the spectrum of the smartphone market: it has to cover 'casual' users like you, who don't see a need to upgrade unless there are fundamental gains in obvious areas like screen size and speed, as well as enthusiasts of seemingly every stripe.  I upgrade every couple of years because the improvements in cameras, performance and other features are usually large enough that I'd appreciate them, but I know many people aren't like that.

Personally I upgrade when there's some big gain. I upgraded my 5s to a 6s Plus because I wanted a bigger screen, and I upgraded my 6s+ to an X because I wanted something more manageable. The better camera, performance, and screen is nice, but would never be enough to get me to upgrade. 

[CostcoSamples]

lol this is not surprising.  iPhone X is a RIP OFF!

[Commodus]

15 minutes ago, CostcoSamples said:

lol this is not surprising.  iPhone X is a RIP OFF!

The iPhone X isn't necessarily a rip-off -- the problem is whether or not there's enough of a sustainable market for an iPhone that starts at $999.  To abuse car analogies, it's like claiming that an $80,000 Mercedes is a rip-off because you can get a $20,000 Honda that carries the same number of people from A to B.  In both cases, the people who can afford it can easily point to justifications; it's just that many more people can't rationalize $80K, even if they can afford it.

[CostcoSamples]

1 hour ago, Commodus said:

The iPhone X isn't necessarily a rip-off -- the problem is whether or not there's enough of a sustainable market for an iPhone that starts at $999.  To abuse car analogies, it's like claiming that an $80,000 Mercedes is a rip-off because you can get a $20,000 Honda that carries the same number of people from A to B.  In both cases, the people who can afford it can easily point to justifications; it's just that many more people can't rationalize $80K, even if they can afford it.

I have no issue with luxury products.  But the reason Apple profits are soaring while sales are diminished is because their markup on the iPhone X is massive.  Yes, it's a good product and worth of a high price, but currently the price is astoundingly high, and people are still going for it.  Smart business move (in terms of turning a bigger profit), but it only makes me dislike Apple.

[Commodus]

13 minutes ago, CostcoSamples said:

I have no issue with luxury products.  But the reason Apple profits are soaring while sales are diminished is because their markup on the iPhone X is massive.  Yes, it's a good product and worth of a high price, but currently the price is astoundingly high, and people are still going for it.  Smart business move (in terms of turning a bigger profit), but it only makes me dislike Apple.

Apple's gross profit margin this quarter was hovering around 38 percent, which is fairly typical for them (it doesn't usually go much lower than 35-36 percent).  I suspect the profit margin on an iPhone X is roughly the same as for most other iPhones -- it's just that the higher price of producing one leads to taking in more cash with that margin.  It's not lowering the margin to make it seem more palpable.

 

As you might have guessed, this doesn't make me dislike Apple.  My concern is more whether or not this is sustainable.  It was easy to charge $999 for a brand new product during the holiday quarter... it'll be harder when the phone has been on sale for half a year and the novelty/holiday effect is gone.  With that said, the rumors were that it cost $999 because of part scarcity.  Wouldn't be surprised if it's $899 (I'm not expecting $799 any time soon) with the next revision just because the production challenges are clearly over.

[Guest]

4 minutes ago, Commodus said:

Apple's gross profit margin this quarter was hovering around 38 percent, which is fairly typical for them (it doesn't usually go much lower than 35-36 percent).  I suspect the profit margin on an iPhone X is roughly the same as for most other iPhones -- it's just that the higher price of producing one leads to taking in more cash with that margin.  It's not lowering the margin to make it seem more palpable.

 

As you might have guessed, this doesn't make me dislike Apple.  My concern is more whether or not this is sustainable.  It was easy to charge $999 for a brand new product during the holiday quarter... it'll be harder when the phone has been on sale for half a year and the novelty/holiday effect is gone.  With that said, the rumors were that it cost $999 because of part scarcity.  Wouldn't be surprised if it's $899 (I'm not expecting $799 any time soon) with the next revision just because the production challenges are clearly over.

I'm about to buy one and I'm very excited to. The OLED is a big, big change

You could say I could go for an Android with OLED for a much cheaper price, but Apple's solution doesn't burn in as much (Or so I've heard) and I need a reliable device. Maybe I should make the switch to Android but nothing really amazes me in that sector like the iPhone.

So for me, at least, the novelty effect is still there. Maybe if there were competition in regards to quality it would be different.

[MadyTehWolfie]

Their sales are low but high profits. Hhmmmm reminds me of how valeant did the same by making a 1 buck per pill drug worth 300+USD per pill. Lol Looks like apple might be taking a page out of their book. Not sure they are even still around.

[79wjd]

5 minutes ago, MadyTehWolfie said:

Their sales are low but high profits. Hhmmmm reminds me of how valeant did the same by making a 1 buck per pill drug worth 300+USD per pill. Lol Looks like apple might be taking a page out of their book. Not sure they are even still around.

TIL 77 million iPhones is low. (It was 78 million in Q1 2017 and 74 million the year before).

[MadyTehWolfie]

2 hours ago, djdwosk97 said:

TIL 77 million iPhones is low. (It was 78 million in Q1 2017 and 74 million the year before).

Eh similar is the fact that sales decrease profit increase. Fact they are selling a 250 buck phone for 1k makes the comparison somewhat valid.

[abazigal]

3 hours ago, MadyTehWolfie said:

Their sales are low but high profits. Hhmmmm reminds me of how valeant did the same by making a 1 buck per pill drug worth 300+USD per pill. Lol Looks like apple might be taking a page out of their book. Not sure they are even still around.

Apple's business model is in offering users a vertically integrated ecosystem, as contrasted with Google, who is horizontally integrated (they make their services available on all platforms, so as to attract as many users as possible, which plays to Google's business model of gathering data and serving ads). 

 

The main feature of a horizontally integrated model is a lack of differentiation (google apps are just as good on iOS as they are on android, within the confines of the respective OSes), which they make up for with volume. 

 

What this means for Apple is that they will never have as many users as Google, but it also allows them to charge a premium for their products because of their highly differentiated nature (which will appeal to a select group of users who are willing to pay top dollar for what they perceive to be a superior user experience for them). 

 

There's nothing dirty about it. This isn't some shady pharmaceutical selling crucial, life-saving drugs at grossly inflated prices. Apple charges what the market can bear, and they know there are enough people willing to pay their asking prices for their products. 

[MegaTechPC]

I LOVE the iPhone X personally.  But I still bought a Note 8!  It really did come down to those two phones in the end as nothing else really interested me.  I ultimately felt that the iPhone X was just too small for me personally (though I have big hands so I always skew towards larger phones).  Subjectively I enjoyed the quality of the display on the iPhone X a bit better than on my Note 8, but the difference isn't significant and the larger size of the Note 8's screen is really nice for media consumption.  Of course the iPhone X also handily beats any Android phone in the synthetic benchmarks (that are all but irrelevant) and Apple has been making easily the fastest mobile processors on the market for a long time.  I'm surprised that their sales numbers are down to be honest because the X is a brilliant device and I'm sure most the Apple fanboys have gotten one already.  I do recall that there were quantity issues for a while after launch so it could just be a case of not having enough products TO sell...

[mr moose]

Has anyone made a battery joke yet?

[Guest]

21 minutes ago, mr moose said:

Has anyone made a battery joke yet?

we already have dedicated threads in General Discussion every few weeks its fine

[Commodus]

12 hours ago, MadyTehWolfie said:

Eh similar is the fact that sales decrease profit increase. Fact they are selling a 250 buck phone for 1k makes the comparison somewhat valid.

It's not a $250 phone.  I wish people would stop echoing those bill of materials reports as if they're wholly representative of the price of a given device.  The base material cost by itself is usually wrong (Tim Cook in particular has called them wildly inaccurate), but they also don't include patent licenses, R&D and the other costs of making the phone.

 

If you want a better idea of how much Apple's devices actually cost to make, look at its gross margins, which tend to hover around 35-38 percent.  That's still higher than many of Apple's rivals, but it's not the "omg they're charging 4X what it costs" markup people like to float.  And let's face it, those rivals are frequently hell-bent on bleeding as much cash as possible -- I'm not sure if we should hold them up as role models.

[wasab]

Buy the otter box defender series for the iPhone X. I have it and I drop my phone on cement pavement many times while jogging. I do not even brink an eye. The case literally made the phone unbreakble. Don’t bother paying for Apple insurance. I would rather have a phone that don’t break in the first place than a phone that was broken and then fixed.

[JoeCoke]

On 2/2/2018 at 7:40 AM, Jamiec1130 said:

I still use a Samsung Galaxy S4 daily, and it's nearly 5 years old.

Gonna use my S5 till it dies. I love this phone. The battery has been acting weird, so I'm gonna... Ya know... CHANGE THE BATTERY!!! Might even get one of those huge battery cases to triple my battery life. Can't do that on a S8! Wish I could have a s5 like phone but with the s8's awesome camera, because the camera is the only thing that feels lacking on my phone, I'm perfectly happy everywhere else.

[MrDynamicMan]

Apple is an image brand. Sales have dipped because the iphone 8 looks the same as the 7 and 6. Their first new looking phone in, what, 2-3 years Has a colossal profit margin and a cool look. Everyone in their demographic will buy it, and even though thats less people than it was already it doesnt matter because they have goliathin profit margins on the X

[Aniallation]

*breath in*

 

I don't know about you but I'm not interested in paying more for a phone than I did for my car

[DoctorWho1975]

Looks like this has inspired Samsung to blow up pricing for the s9... 850 and 950 rumored. Be interesting if the Apple way works, 950 sure as heck puts me out of the market for the device, 850 is tough to pull trigger on.

[MegaTechPC]

On 2/5/2018 at 11:52 PM, DoctorWho1975 said:

Looks like this has inspired Samsung to blow up pricing for the s9... 850 and 950 rumored. Be interesting if the Apple way works, 950 sure as heck puts me out of the market for the device, 850 is tough to pull trigger on.

The MSRP for new release phones really only is relevant for preorders and for those who simply have to be the first people in their circle of friends to have a newly released phone.  After as little as a couple of weeks post launch, most new phones are massively discounted or their are aggressive sales etc.  I bought my Note 8 just a couple months after release for $585 from Best Buy for instance, so if you really want an S9 for reasonable money, just wait a month or so and I guarantee you will be able to find one for hundreds of dollars less than MSRP.