As you can see in the chart above, the margins on the iPhone are soon to be under pressure. I have included a simple model to allow my professional/insitutional subscribers to plug their own numbers in and decide for themselves - see "iPhone Margin worksheet - blog download (click here to subscribe/upgrade). Between the iPhone and the iPad, we're talking about 82% of Apple's profits! Think about this.
In the first quarter I lamented on the drop in both margin and market share of the iPad, see Apple's iPad Is Losing Market Share And Profit Margin As Apple Hits All Time High. I included plenty of pretty pictures to get the point across...
Prices are dropping…
Costs are increasing…
So what does all of this add up to? Margins dropping!!!
Now we have other publications catching on as well. as can be read on the Business Insider site. In 2011, I made clear that the days of the fat margined tablet are numbered, see Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet – Including The Pretty iPad, With Proof! That was over a year and a half ago. Check out this headline from a few months ago... There's Been A Huge Drop In The Average Selling Price of Tablets... - Business Insider
The average selling price (ASP) of tablets keeps falling. The ASP fell 17 percent from 2010—when it was pretty much just the iPad—to 2011. Through the first six months of this year alone, the ASP has fallen another 17 percent. The drop is driven partly by the introduction of $200 mini tablets like the Kindle Fire, but also a fall in price of the dominant large-screen devices. As we discussed earlier this week, the ASP of iPad's has fallen significantly from a year ago.
BI also chimed in (a year later) on the iPad margin thingy, albeit about a year and a half after BoomBustBlog broke the story...
Well, now its the iPhones turn, and this was foretold at least a year and a half in advance as well...
- How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue
- Sliced Apple Margins For Dinner?
What many fail to understand is that what Google as released with its reincarnation of Android is not a new mobile OS, or a flexible handheld technology, but an innovative business model that harnesses open source software for a path to profitability and turn the suppliers and vendors of fat margined leaders against it - literally ingenious and very, very difficult to counter without compressing your own margins. Those interested in reading more can reference Looking at the Results of Google's "Negative Cost" Business Model Employed Through Android. So, let's get started by reviewing portions of my hypothesis from last year... enter the Google Cost Shift
Did Apple miss in 4 to 8 quarters after my first warning? Yes, as a matter of fact, they missed exactly 4 quarters later. The Only, and I Mean the Only, Investment/Research House To Warn Of An Apple Miss Is Vindicated!!! As a matter of fact, Apple missed twice in that 12 month period - telling since it hasn't missed since 2004!!!
This October will mark the 8 quarter period that I gave publicly since the original CNBC interview for Apple to start feeing the heat from Android competiton. It's looking pretty good thus far...
Reggie Middleton on CNBC's Squawk on the Street - 10/19/2010
Mr. Middleton discusses JP Morgan, bank risk and technology and is the only pundit in the financial media that we know of that called Apple's margin compression issues and did so successfully just hours before they reported! Clickhere or click below to see the video.
Industry Leading, Subscription Based Google Research
Google still exhibits the likelihood that they will control mobile computing for the balance of the decade.
Google Final Report 10/08/2010
A couple of bits from our archives...
The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as valuation for each business line.
Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.
Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.
Unique, Indpendent and Accurate Apple Research