Apple Makes $831 On Each AT&T iPhone 547
Ponca City, We Love You writes "The NYTimes reports that Gene Munster, an analyst at Piper Jaffray, has studied Apple's financial statements and come to the conclusion that AT&T is paying Apple $18 a month, on average, for each iPhone sold by Apple and activated on AT&T's network — up to $432 over a two-year contract. This shows how much incentive Apple has to maintain its exclusive deal with AT&T rather than to sell unlocked phones or cut deals with multiple carriers. Last week Apple disclosed that 250,000 iPhones had been purchased but not registered with ATT that Apple thinks are being unlocked so Apple has now taken action to curb unauthorized resellers by limiting sales of the iPhone to two per customer and requiring that purchases must now be made with a credit or debit card — cash will not be accepted." The latter article links to a US Treasury page explaining the incorrectness of the widely-held belief that cash cannot be refused for any transaction.
that math is wrong (Score:5, Insightful)
apple doesn't get iphones from fairies. They pay money to build them.
Oh the horror! (Score:1, Insightful)
Freeing the Hardware (Score:3, Insightful)
Re:that math is wrong (Score:5, Insightful)
It's better to report the total without them taking wild-ass blind guesses as to how much of that is profit (like iSuppli's crazily inadequate "what it costs" figures). Even if those numbers are right (and sometimes they just pull costs out of their ass because it's "close enough" to something they've seen before), that still only gets you to gross profit. And at the end of the day, gross profit is nowhere even close to the much smaller net profit.
Re:Greed (Score:2, Insightful)
Because the things they make are pretty.
useful information (Score:5, Insightful)
Nevertheless, where do you think this money is coming from? Do you think that AT&T is giving that to Apple because they are such good buddies?
No, you are paying for it one way or another (e.g., by paying a premium for their sluggish EDGE service).
Re:They make money. So what. (Score:2, Insightful)
Re:Too bad apples lawyers do not understand Law. (Score:3, Insightful)
Of course you can. "Legal tender" simply means that it is a legally acceptable form of payment, not that you must accept it.
I can demand live chickens and jelly beans as payment if I feel like it, and you waving cash in my face while threatening to call the police can't make any difference.
Re:that math is wrong (Score:5, Insightful)
When they don't have data on a particular component, they use something they deem to be relatively similar. They extrapolate an approximate price based on what they feel is an appropriate price at a given (assumed) volume level. They never seem to account for time or place of purchase, either, which can be significant factors in volatile markets. For example, they used a run of the mill touchscreen price for the iPhone, without multitouch and without the daylight-readable backlighting.
Each step of the game is an approximation adding further error to the calculation, and by the end, they almost invariably end up at a "cost" figure that is below reality, sometimes significantly. I have some experience in various litigation involving some of the products they've assessed, and based on what we get in discovery, iSuppli's numbers are, in comparison, highly conservative and geared toward getting the highest possible gross profit rather than providing the most accurate figure. They generate the biggest stir when people think that actual manufacture costs peanuts, so it makes sense from their perspective, but it does a disservice to everyone.
Exactly! also this exaplins a lot. (Score:4, Insightful)
Now another way of saying this is I am paying 431 dollars less than the true sales price of the iphone. Or another way of saying it is, AT&T is giving me an $18 a month discount for using an Iphone on their network. All upside to me. Of course that mean I should be upset about the unlockers who are preventing them from giving me an even larger discount.
This seems to fit some other piece of the puzzle. For example, Why to UK iphones cost so much more? Presumably because of a lower subsidy. And why is apple booking the iphone revenue as deferred subscription income? Because they are probably not making any money on the sales, but on the 18$ per month.
Finally, this also helps axplain the anomolous $200 price drop. My original guess, which this reinforces, was that apple took a huge gamble on the technology. Craploads could have gone wrong. The screens might have scratched to easily, the batteries might have died prematurely, the OS might have blue screened. . So many untested things you can't really adequately Q/A before the roll out. Plus it might not have been popular. There were a few look-alikes in the pipeline, what if one had rolled out earlier?
So they had a huge risk margin built into the price. Once the risk dissipated they could remove that. But at the time this hypothesis seemed a little off. Sure a risk margin is there in any product but how could they overestimate by 50% of the propert phone price? that seems way too high. But now realize the true sales price of the phone was 1031$ and they lowered it by 20% to 831. Now it does not seem quite so absurd.
Re:They make money. So what. (Score:3, Insightful)
Your right, I don't expect a business to act in any way that does not maximize their own profit. Nevertheless, we need to pass laws and regulations to ensure that the actions of profit maximizing corporations do not interfere with the collective well-being of society.
Property laws, Anti-trust legislation, and contract enforcement are all examples of such laws. Without such measures, free markets would barely function, let alone be optimal.
Certain types of actions, such as carrier lock-in, creating Monopoly power, and exclusivity contracts, are very often the most profitable courses of action for a company (An extreme example would be forced enslavement and wide scale theft). However, these actions leave society poorer than it would have been had these actions been illegal.
The Free Market is a mathematical ideal, described precisely in the first Welfare theorem. It is a great ideal, and one that we should strive for as an utmost priority. However, the model assumes that these kinds of transactions do not exist.
So to support a business model based on depriving consumer choice is not free-market, it's Plutocratic.
Re:It's the network. NOT. (Score:2, Insightful)
Good points, except they apply to any carrier. All carriers have coverage gaps, and having unlocked iPhones available doesn't exactly mean that problem is solved. In the US, at least, where T-Mobile is pretty much your "other" GSM option, the coverage issue certainly isn't solved.
One thing that strikes me about this product in particular is how people feel entitled to it, as though in a free market you have the "right" to purchase and use an iPhone. Like all products the iPhone has a target market, and apparently Apple has decided that its target market for this device shall be limited to the people with coverage by one of its exclusive carriers. They have the right to make that decision, just as you have the right to determine whether or not it fits your needs.
Bottom line: The iPhone isn't intended for everyone, and if you have to jump through hoops to get it on your terms, it certainly isn't meant for you. Wait a little while so the market can come to terms with how to create appropriate competing products, and buy something that actually fits your needs.
Re:that math is wrong (Score:5, Insightful)
Without being able to get within 20% in some cases of the actual materials cost, it doesn't inform any conclusion about the product. The general gross margin range they report is 25-50%--practically that entire variation is within their margin of error in reporting the figures in the first place. Thus, the assessments, apart from being nerd porn, are perfectly vacuous.
I think most people can figure out that almost nothing is sold without a gross margin of at least 20%, and that 50% isn't terribly uncommon either. Unless iSuppli shows up with a 75% margin one day, there's nothing useful about it.
Good bye Apple (Score:2, Insightful)
And im sure i am not the only one.
Re:that math is wrong (Score:3, Insightful)
That means profit alone. If you aren't aware of this, that's fine. After all, many people on the internet are not in English speaking countries, so perhaps you just aren't very familiar with the language we are using.
No big deal, but apple makes a heck of a lot less than 831 per phone. Still a heck of a lot.
Re:Nonsense, fuzzy math (Score:2, Insightful)
Re:that math is wrong (Score:5, Insightful)
Then perhaps the obvious flamebait headline should have been crafted to reflect that simple fact. But in the age of one-liner evangelism, Apple Makes $831 Revenue (Though Not Really Profit, Mind You) On Each AT&T Phone Although That's Pretty Much Irrelevant To Everything, We're Just In It For the AdSense Revenue just doesn't work.
I'm having trouble trying to understand the mindset of people who think $831 or $8,311 represents "greed". If the market will bear it, that's the correct price. Otherwise Apple would have sold 1,000 iPhones instead of 100,000 or however many they've shipped so far.
Re:They make money. So what. (Score:3, Insightful)
More Math (Score:2, Insightful)
Geez... (Score:3, Insightful)
Re:that math is wrong (Score:5, Insightful)
"cash will not be accepted." (Score:2, Insightful)
besides, i hate places like this, they try tell me how and with who i use my property. now the fuckers want to choose how i pay for it as well?
Re:Geez... (Score:2, Insightful)
AT&T Is Getting Their Money's Worth (Score:4, Insightful)
The complaints about the iPhone never seem to come from iPhone users. The highest customer satisfaction in phones is iPhone at 82%, the next best is Blackberry at 51%, then ALL THE REST are below 50%. Everybody is paying a similar monthly carrier fee for their phone, but not everybody is getting the same value from it. So complaints about how much money Apple/AT&T are making while offering a single phone that has both the highest customer satisfaction and the most features really seem disingenuous to me. Complain about how much companies are making for selling phones that garner http://www.google.com/search?client=safari&rls=en&q=iphone+customer+satisfaction&ie=UTF-8&oe=UTF-8
Re:that math is wrong (Score:5, Insightful)
Re:They make money. So what. (Score:2, Insightful)
Re:that math is wrong (Score:3, Insightful)
I suspect there isn't a whole lot of judges that would let the "They wouldn't do what we wanted them to do after they paid for the item, so we deactivated it" argument hold water.
Re:that math is wrong (Score:5, Insightful)
You don't understand... if something is marked up 75%, there most likely isn't business elsewhere. Is someone else selling iPhones besides Apple? Are they cheaper? Get the picture? If I told you Oil was being sold at a 100% markup, are you going to trade in the car for a bicycle as a show of "taking your business elsewhere?" No. You are either going to buy this "widget" for "this price" or you aren't. Supply and demand set the price, not it's known markup. If you are going to use markup in your purchasing decisions, know that it will have zero effect on everyone elses purchasing tends, and therefore will do nothing more than satisfy your strange needs to not give too much profit, even if demand supports it.
Good luck.
Re:useful information (Score:3, Insightful)
Re:that math is wrong (Score:4, Insightful)
Good luck.
Re:that math is wrong (Score:5, Insightful)
An error of 20% on a parts bill will move you from one end of the gross margin scale to the other. In other words, the error of the estimated cost rarely does any better than the standard margins on products. Then there is absolutely no guidance whatsoever on net profit figures, which are what really matter. The company itself can be assessed, but it's pure folly to try to do it for individual products.
Let's take a product. Retail price $100, iSuppli guess: $58 for parts. That's 42% gross profit, and we will use your conservative and overly generous 10% range for accuracy. The possible gross margins range from 47% to 36%. What does this mean? That they fall in the normal range of 20 to 50%. What did we learn? Nothing. We already knew it was almost certainly going to be in that range, and regardless of where it falls, it's unremarkable because it's the normal range. The only place it would be noteworthy would be if iSuppli found figures grossly outside that range (e.g. 75% or 5%), and that basically never happens.
What do you gain by knowing that the product is within a normal range of markup? The "smaller iSuppli margin" product could easily be the bigger-margin cash cow, and an attempt to minimize the pocket-lining of corporations can't be undertaken with the information iSuppli supplies, if you'll pardon the pun.
When your margin of error covers the most of the basic spread of possibilities, you're not providing a service. Trying to peg it down to some quasi-accurate Ouija-board figure without any real knowledge gets us nowhere useful. iSuppli rarely, if ever, has provided anything better than a 20% range on a 20% range, which means it has never demonstrated or even rationally suggested that any given product is a better "value" than any other. It relies on faulty analysis for people to make that claim and gives them a quasi-factual, half-true basis to do so. This can only cause harm.
The entire system is highly variable from company to company, and even among products from a single company. Without details, it is impossible to get any accuracy beyond a massive range. Gross profits are usually 20 to 50 percent. Net profits for self-sustaining (i.e. not loss-leaders) products are usually 5 to 20 percent. Anyone offering you any level of accuracy beyond that without specific documentation is lying.
Re:that math is wrong (Score:2, Insightful)
If the producer is making significant profits, it's not the correct price. After all, if the profit is significant, someone else should quickly produce a clone and undercut the original manufacturer. A free market is a two-way street, and properly functioning it doesn't leave much profit.
So, where are the cheap iPhones? They're not here because we don't have a free market. Apple is being protected by government granted monopolies. Patents and copyright are nothing less than government interferance in the free market.
So is the current price the "correct" price? We'll never know while the market is corrupt. Me, I'm okay with it, but it's silly to suggest that the price we're seeing is somehow special and shouldn't be questioned.
Re:that math is wrong (Score:4, Insightful)
Wrong. You know why? Because this is not bread, or baby formula or bottled water or heating oil. It's a fucking gadget. People obviously didn't have a problem with the price when they whipped out their credit cards by the hundreds of thousands and lapped these things up like candy because they wanted to be "hip". It's a cell phone. What's the difference if you suddenly figure out that Apple has a 75% markup on the thing? Or 400%? You obviously don't care, since you already agreed the price was fair by purchasing one.
If Steve Jobs' core talent consisted on taking a crap and putting it in an off-white plastic case with shiny lights and selling it for $2,500 a pop, who are you to complain? On the contrary, more power to him and the chumps who get bilked because they want to be fashionable.
With regards to the iPhone... (Score:2, Insightful)
ITS A DAMN PHONE.
Let Apple separate the dummies from their money. You should not legislate to prevent that as there are so many other phones and programs available. Nothing ceases to amaze me how riled up geeks get when what THEY want is limited but not when what OTHERS want is.
Yeah we need government regulation in certain cases, but this isn't one of them. Funny thing is, it may be that Apple changes the cell phone industry, just not in a way profitable to Apple. In fact Apple with their lock-ins (ipod, iphone, etc) may just get more scrutiny than they want. Being popular isn't always a good thing
Re:that math is wrong (Score:2, Insightful)
Re:that math is wrong (Score:3, Insightful)
Don't worry about security - I can handle anyone who types "M$" or who uses the phrase "From hell's heart in my parent's basement, I stab at thee!"
Re:Nonsense, fuzzy math (Score:2, Insightful)
Re:that math is wrong (Score:2, Insightful)
So essentially what we have, it seems, is a piggy kid robbing all the other kids because mom doesn't pay attention. But it's good that he is doing so, because mom might figure it out and maybe there will even be a weekly allowance after she does.
Hmm..