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Apple: Margin Squeeze For iPad and iPhone?

  • Written by Syndicated Publisher No Comments Comments
    September 24, 2012

    As reported by ZDnet, “The total hardware inside a new 16GB iPhone 5 is estimated to cost $199, and the report adds another $8 manufacturing costs, bringing the total to $207. Contrast this to the off contract price of $649 that Apple charges for the handset and you can see how Apple keeps the dollars rolling in.”

     

     

    iSuppli’s analyst is quoted:

    “With the base model carrying a $199 BOM, the iPhone 5’s components are expected to be slightly more expensive compared to the iPhone 4S model,” said Andrew Rassweiler, senior principal analyst, teardown services, for IHS. “The low-end iPhone 4S with the same memory density as the base-model iPhone 5 carried a BOM of $188, according to a preliminary estimate issued by IHS in October 2011. While the price of some components, such as NAND flash, has fallen during the past year, the iPhone 5’s overall BOM has increased mainly because its display and wireless subsystems are more expensive compared to the iPhone 4S.”

    In Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance I gave the two year heads up that Apple has already lost the market share race.


    This loss in market share caused Apple to squeeze their own margins for they had to keep up with the rampant Android innovations. Look at the iSuppli chart above – bigger screens (like Android), LTE (like Andrioid), notification mods in OS (like Andrioid), cloud services (like Andrioid), and soon NFC (like Andrioid). Apple on the Margin explained this 2 years in advance, as did Evidence Of Apple’s Margin Compression Crops for its tablets:


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    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.

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    Images: Flickr (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
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