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More Evidence Of Apple Price-Margin Compression

  • Written by Syndicated Publisher No Comments Comments
    August 12, 2012

    I have warned that Apple will face margin pressure on its core products as the smartphone and tablet competition heats up, ie Apple Gets Sliced and Diced As Google Enjoys Fruits Of Long Range Planning. Well, Macworld, Endgadget and several other sources report Apple reportedly price matching iPhone discounts from carriers and other retailers

    Apple reportedly price matching iPhone discounts from carriers and other retailers

    According to a leaked screengrab hosted up at MacRumors, Apple retail shops now have the authority to price match carrier and rival retail discounts on iPhone. Specifically, the note informs employees that prices from Best Buy, “carriers,” Radio Shack and Target can be matched, with $49.01 seeming to be the savings across the board. Curiously, places like Wirefly, Amazon, Negri Electronics and even Walmart aren’t mentioned, so we wouldn’t recommend trying to work the price down based on ads seen from any of those. 

    Price matching big box retailers clearly shows the luxury, premium aura of the iPhone to be at the end of its cycle. That means from this point on, Apple may very well have to compete on tech and capabilities, where it is sorely outclassed by its Android competition. The iPhone 5 launches in about 30 days, and not only will it have to be the Samsung Galaxy S3 and HTC One series, it will have to outrun the revamped Note and whatever new Google is cooking up through its Motorola acquisition (don’t beleive Google won’t transform Motorola into a new age device manufacturer). Remember, Samsung and LG manufacturer much of the processors, memory chips and screen tech that go into the iPhones. While there are other firms that can produce such, very few can produce 100s of millions of them other than Samsung and LG – two staunch Apple competitors running a common platform — Android!!! It is nigh impossible to win a competition with your own vendors, so one is best served not to get into such a competition in the first place.

    I explained the tense competition between Apple and Google in a way that many participants fail to recognize on the Max Keiser show – I Illustrate Exactly What Kind Of Battle The Google/Apple Thing Really Is On Max Keiser Show

    As explained in Apple Gets Sliced and Diced As Google Enjoys Fruits Of Long Range Planning:

    Apple gargin was 42.8 percent compared to 41.7 percent in the year-ago quarter. Wait a minute… Isn’t that margin number sliding in the wrong direction? It’s because they are selling less iPhones as compared to iPads and the iPads are lower margin products, and the margins are getting even lower as competition ramps up and ASP drop while unit costs rise in relation. Of course, I went through this in detail several times.

    For all of those near fanatics who do not subscribe, I suggest you ask a friend who does subscribe to share with you the difference between last month’s valuation note target price (page 10 of File Icon Apple Margin & Valuation Note) and the price of Apple today (click here to subscribe). I also urge the same for Google using our latest Google Q1-2012 Valuation Summary.

    As excerpted: 

    It is worth noting that the key assumptions that underline the above valuations – (1) iPhone continuing to witness stupendous growth *******  in 2012 and ****** 2013 over a larger base and (2) iPhone margins continue to remain healthy off stable prices and despite increase in material cost – should be keenly watched over the next couple of quarters. 

    Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. As stated many times in the past, The BoomBustBlog argument and analysis is solid.

    What else is there to the earnings announcement? Well we were absolutely correct in terms of the oncoming margin compression of the the product lines, something that was actually easy to see coming but many refused to admit. Of course, there will be those select few that say, “But wait, the company reported an INCREASE in margins while you said there will be a decrease!”. Yes, that’s true and both can exist simultaneously.




    Comments are always welcome.


    Images: Flickr via (licence/attribution)

    About The Author

    Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts to uncover truths, seldom if, ever published in the mainstream media or Wall Street analysts reports. Since the inception of his BoomBustBlog, he has established an outstanding track record