Apple iPhone margin: 2X that of Nokia Lumia 900
Summary: Nokia Lumia 900 components cost $20 more per device than the Apple iPhone 4S. But Nokia's device sells for $200 less. If you're betting on margins, don't hold your breath
Did you catch this latest brief in the Wall Street Journal?
The success of Apple is an oft-told tale, but what is rarely acknowledged is how complex the drivers are of that result.
Great design, sure. Innovative form factors, indeed. Pop culture icon, indeed. Lofty price points, absolutely. Savvy corporate moves -- well, most of the time -- for sure.
But sometimes it comes down to cold, hard numbers. As it has done in the laptop segment, Apple has demonstrated that it's very good at keeping component costs down while offering a complete product that appears superior than the competition -- and is priced accordingly.
No wonder Tim Cook landed the top job.
The Journal's Anton Troianovski and Don Clark explain how difficult it will be for Finland's Nokia -- rapidly losing its pole position in mobile -- to best the Cupertino, Calif.-based company when the numbers are perilously out of its favor.
No, not the company's stock price -- and not its sales, either. It's all about margins.
The Nokia Lumia 900 -- the company's "back to black" flagship device -- sells for a whopping $200 less than the Apple iPhone 4S. But its components cost about $20 more per unit. (Why? The Journal suggests a larger screen and more advanced chips.)
You don't have to be CFO to understand that the math is not in Nokia's favor, even if the Lumia 900 takes off: that's a $241 margin, versus Apple's $459.
This could be a real problem for Nokia. For now, it's an aggressive strategy to get back in the game.
If you're a shareholder searching for a dividend (any of those left?), you're probably terrified. But, as we saw with Google Android, the low-cost, rapid proliferation strategy can work -- temporarily -- provided you offer a device that's competitive with the iPhone. Because as we all know, it's not about the phone so much as the ecosystem -- and Nokia and Microsoft both need people to buy into Windows Phone. (And stay there.)
The challenge is where to go from there. Once you race to the bottom, price-wise, you can't race back up. Even if Nokia succeeds in putting a Lumia in everyone's pocket, and helps to turn the phone into a commodity like the laptop and the external hard drive, the company is still scraping for cash, relatively speaking.
Nokia doesn't just need to beat the iPhone; it needs to utterly snap its popularity streak. The belle of the ball gets to choose which song to dance to, and for too long, every mobile OEM has been swaying to Apple's beat. In this example, the song is leverage -- over retail prices, component prices and terms thereof. All because of intense popularity with consumers.
The other challenge: that commoditization thing. Apple has plenty of other revenue streams, thanks to iOS and every service and store that plugs into it. Motorola gave its software play to Google, which then turned around and bought it, bringing that money back under the same corporate roof. (Can't say the same for Samsung, HTC or LG.) Nokia did the same thing -- the first part, at least -- with Microsoft.
If this suicide mission is going to work, Nokia needs to pull an Android play: undercut the competition with pricing, sell volumes, lock users into a satisfactory ecosystem, use its new largesse to renegotiate component and retail prices more favorably -- and maybe, just maybe, merge with Microsoft to secure future software revenues. All while offering a product that consumers find attractive enough to leave their iPhones for. (And we haven't even discussed tablets yet.)
It's not just a wide margin that Nokia needs to overcome. It's the very scope of the challenge itself.
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Talkback
People are overpaying for pretty Apple hardware.
A fair price is one that both seller and
scratch that
Also that price build calculation is very dubious
Especially "and more advanced chips" part, since iPhone 4S has more advanced chips such as Apple A5 -- as test proved. Camera also better, and the case itself is certainly pricier in iPhone (steel and metal against plastic), and so on.
But that price is also artificially high.
Though it is a bit dishartening to learn that the blooger prefer we recieve the
cheapest phone manufacturers can make, using Android or WP7 on bottom line
hardware. We matter less then the corporations.
But in truth, those margins are artificial
Would not the logical way be to have US carriers opporate as they do in overseas martkets? As we can see, when price is not subsidized, the iPhone does not sell as well as many others. Here in the US, would the consumers still purchase the iPhone at 600 dollars when they can get a equal WP7 or Android phone for 200 dollars less?
This would force Apple to lower their price, thus lowering their profit margin.
This is not about how smart Cook was/is, instead how smart Steve Jobs was to get US carriers to sell the iPhone at a loss.
:|
Apple tried selling for $600 and it was a flop
Wrong
iPhone did cost $600, failed.
Well...
Nokia's stategy seems fine to me
Eljay and Mister Spock are right
I wonder if all the bloggers on ZDnet are afraid of helping their viewers save some money. Of course, die-hard Apple fans will want to downrate me for pointing this out. Guess what Apple fans... the same goes for ANY phone. This article is about the margins on the iPhone so that's what I'm talking about now. If you buy any top-of-the-line phone, you are supporting higher service fees from carriers. If you buy a phone off contract and use it on a monthly plan, you'll save tons and tons of money.
I bought my phone that retails for $350 new on ebay new for $269. On a $50/mo unlimited everything plan, I could buy an iPhone outright after two years just to say I bought one and still have saved money over having my phone on a two year contract. Instead, I'm going to save that money for other things.
this is why
That is expensive.
- 100 euros for Android phone
- 2 euros for unlimited data (speed and amount, I get as much as devices can just get, now 14/7.2 Mbits up/down).
- 1 euro for unlimited talk time
- 1 SMS 6 cents.
I don't care about SMS, being 6 cents a piece, why?
Because I don't write them. They are slow, can not attache good images or videos (MMS what cost 15 cent) and you have 160 letter limit.
Every smartphone owner should use email. You just email all the time. No limits of size or attachments and you can access them from everywhere, not just from your phone.
When I sent about 10 SMS a month, it is just 60 cent. But it is always faster and easier just to call someone (all goes to 1 euro even if I would talk so much other one would not want to hear from me anymore) and discuss about the topic even in few seconds than spend more time typing SMS and sending them few vice and versa.
When my bills at month is just few euros and I am heavy used data amounts are about 70GB), I don't know what I will do when contract ends end of this year because I have so found to that deal.
Of course you're totaly wrong...
Any proof, or are you making an [b]ass[/b]umption? Microsoft is subsidizing each Nokia phone. The truly sad thing is order to move any WP 7 phone, you have to give them away...
Here's a good game...
This isn't an iPhone thing... this is a carrier thing. wendellgee is spending $990 in two years on their phone and service. I don't care if they had an iPhone on a prepaid plan- you'll still save money.
There is a hole in your logic somewhere
We're talking about two different things
Here's a link that shows this pretty well, granted it only looks at AT&T. Verizon would be close to the same cost.
http://phone-fanatic.com/blog/guides/the-ultimate-prepaid-iphone-guide
With regards to your comment. An old (2/12) article you need to read in order to understand how this all works. In short, the iPhone costs the carrier more money. Wallstreet says to carrier, "you better keep your profits high!". Carrier says, "Customers, you have to pay more money for your service."
http://money.cnn.com/2012/02/08/technology/iphone_carrier_subsidy/index.htm
Another article that is older, but highlights the problem for carriers yet again. http://www.readwriteweb.com/archives/apples_iphone_not_profitable_for_carriers.php
Anyway... does that mean HTC gets more money than Apple? No it doesn't. It does mean you shouldn't have put your HTC phone on a contract.
2 different things indeed
This applies to ALL carriers that subsidize one's device. And yes I do realize that the increased costs with a contract are due to the subsidization of the devices - most people if they want the higher end devices will pay the extra over time as opposed to having the money up front and I personally am more willing to go through a carrier and get a subsidized device and have it insured which is a drawback to buying a device outright and using a prepaid plan.
In regards to the first link you posted the AT&T cost is deeply inflated - I'm paying $160/m for [b][i]3[/i][/b] iPhones one with an unlimited data plan, one with a 2B data plan, and 1 with a 300MB plan... the chart on the link shows $110/m for 1 iPhone... So I'm getting 2 MORE iPhones for 50/m? Sweet deal then. I also notice that VZW and Sprint were left out of that post even though the post was dated yesterday and both VZW and Sprint have had the iPhone for long enough to add that data.
As a comparison my plan on VZW with my HTC Thunderbolt w/unlimited data is $96/m... which does not come out of my pocket as it's a work phone and my employer foots the bill - and they are not willing to go to another carrier or with a prepaid option.
With your second link the last few paragraphs the carriers or analyst try to blame the costs of the 4G networks on the iPhone calling it a "data hog" but the big hole in THAT theory is that the iPhones are not 4 capable at this time. I just wanted to point that out. My question concerning this is are the carriers actually losing money or are they just seeing a decreased profit?
Here is a simple fact .... that dumb haters don't understand
FACT: Even if you have you own fully payed smartphone (no matter what brand), you still have to pay for the carrier service. You don't get any discount on the price of the service.
So, pay $600 (full retail) for a phone, then pay 2 years of service (assuming $60 a month) and your TCO (total cost of ownership) would be $2040.
Or, pay $200 (or less) for a subsidize phone with a contract for the same 2 years .... TCO: $1640
Which one is cheaper???
People don't change carriers that often and by law you have 30 days to decide if you like it or not. So the issue of being stuck is pretty much BS. Even if you have to break the contract, the cancel fee is still less (or the same) than the extra money you payed for the retail price smartphone.
The bottom line is...