Apple Sells 10 Million Phones a Paltry 11% Gain

By Stephen Pate – Apple sold 10 million iPhone 6 smartphones in the first weekend, barely beating last year’s record of 9 million phones on the first weekend. However, Apple increased their profits by putting the price up $100 per phone.

“Last year in September 2013, Apple sold 9 million iPhone 5c and 5s phones during the first weekend of release. (Financial Post) That is almost double the 5 million phones Apple sold in September 2012 on the release of the iPhone 5.” NJN

Most analysts let Apple off the hook blaming the lackluster sales growth to the China market or supply problems.

“Carl Howe, an analyst at 451 Research LLC, had estimated that Apple would sell 12 million to 15 million new devices during the first weekend, while Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co., projected sales of 7 million to 8 million because of supply limitations and China not being one of the first countries selling the devices.” Bloomberg

The financial analysts have a glow-on for Apple.  The company will continue to get positive ratings until the next two quarters when Apple will either start growing again or face the reality of over-saturation of the smartphone market.

Analyst opinions are also biased favorably towards Apple since the funds they represent are over-weighted in Apple stock.

Apple piles on the margin

If you ordered an iPhone 6 you may have noticed the prices were $100 more than the iPhone 5S at launch.

Apple cleverly dropped the 32GB model and now only sells the phones in 16 GB and 64 and 128 GB models. No-one is expected to order the low-end 16 GB phone since it barely has enough memory for the operating system, apps and a few snap shots. Apple charges $100 for the extra memory that Android and Windows Phones have for about $35.

“The iPhone 6 costs Apple between $US200 and $US247 to build, giving the company a profit margin of 69 per cent for the entry-level model sold in the US” Sydney Morning Herald/Mashable

IT marketing theory popularized by Geoffrey Moore in Crossing the Chasm said there can only be one market leader, Apple in this case, in any technology group and that leader enjoys the highest margins and profits. The leader enjoys economies of scale in manufacturing and distribution and a loyal customer base that tolerates high margins.

An example from the past is Microsoft which became rich in the 1990’s to mid-2000’s by controlling the operating system on 95% of all computers. Microsoft now has less than 20% market share and while still profitable is not a growth company.

Apple is somewhere between its glory days as the company which owned the smartphone category and being a former leader. While it can, Apple is still extracting super profits.

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By Stephen Pate, NJN Network