[thenewbtg]

Your entire rant completely forgets that Apple runs, on average ~70% profit margin ($700 phone costs about $200 to make). Samsung's profit margins aren't AS high, but still are massive which help drive profit.

Your analysis pretends that Apple and Samsung are selling very custom hardware at a margin, and so one cannot beat the margin AND beat the custom hardware.

But there is a LOT of wiggle room to experiment with price when the incumbents are running 70% profit margins.

[Demiurge]

>Your entire rant completely forgets that Apple runs, on average ~70% profit margin ($700 phone costs about $200 to make).

I doubt he forgets it, because it's not true. The 70% difference between retail price and cost to stamp a device at a factory is not "profit margin", because there are further costs, before and after manufacturing, such R&D, organizational and business costs. You can bet Apple is spending more on R&D than almost anyone else, so there is likely no wiggle room at all for anyone to compete on innovation, unless they aim for some niche market.

[spinchange]

>You can bet Apple is spending more on R&D than almost anyone else, so there is likely no wiggle room at all for anyone to compete on innovation, unless they aim for some niche market.

Actually, Apple spends comparatively less on R&D than any of its competitors. It's increased recently, but for many years - especially in the late Jobs years - people were scratching their heads at how comparatively little they spent on it.

http://www.cnet.com/news/apples-r-d-up-32-percent-in-2013-st...

[podperson]

Apple does spend comparatively little on R&D (perhaps part of that is because they don't produce 400 different models of every darn device), but their margins on iPhones are still nowhere near 70%.

[spinchange]

I was just speaking specifically the notion that Apple's margins as a company are eaten up by R&D spend which we agree they're clearly not. (The fact that they're doing multi-billion dollar stock buybacks and issuing increasing dividends show they have more money than they know what to do with).

Although since you brought it up, I did a quick search and found that the margins on the iPhone as an individual product (vs. the company's overall margin) are speculated to be near 70% and that figure isn't just pulled out of thin air:

http://appleinsider.com/articles/13/09/30/iphone-5s-demand-h...

[gcb0]

Because all the companies producing the several parts involved did absolutely no r&d and they got information on how to produce all those batteries, cpus, glass, radios, sensors, etc from aliens.

Every company does r&d and manage just fine with non obscene profits on each product. Apple and Samsung create artificial scarcity with lawsuits. They probably spend more on legal than r&d.

[thenewbtg]

It is true. Apple has a 70% profit margin on sales that they reinvest.

Just because revenue is reinvested doesn't mean it isn't revenue or a margin.

And, seeing as Apple has >$100,000,000,000 of cash and near cash, your "reinvestment" line is a total fantasy. Apple is printing cash with a massive profit margin, and reinvesting a tiny tiny tiny fraction of that money back into their business.

[slantyyz]

>> Just because revenue is reinvested doesn't mean it isn't revenue or a margin.

Your sentence is a little confusing, because calling something revenue means it is revenue. And while related, revenue is not the same as margin.

And please note that the bill of materials for a phone is only a part of the cost of goods sold, which as mentioned by others, also includes manufacturing, assembly, marketing, r&d and other costs. Those costs are generally not considered to be "reinvestment".

[ycaspirant]

I used to track AAPL when I was interning at a financial services firm last summer, and I can assure you that their profit margin is around 20%. Since AAPL is publicly traded, this information is publicly available so anyone can verify it. I'm not sure where you get the idea that their profit margin is 70%.

According to Yahoo Finance (which is a pretty good resource for non-professionals), the profit margin is currently 21%.

http://finance.yahoo.com/q/ks?s=AAPL+Key+Statistics

[aetherson]

You guys are talking about different things. He's talking about unit margin on each phone. You're talking about overall profits.

[podperson]

Well, the GP is talking about Apple's overall margins and the 70% figure is simply wrong. (Retail price - cost of goods is not margin.)

[ycaspirant]

How could those two things be different? Profit per unit = total profit / number of units

[aetherson]

Unit margin is the marginal profit for selling one more unit. It doesn't include the (large) fixed costs of, for example, your personnel or your office real estate costs or R&D or legal. It's basically the bill of materials for your item plus the costs for transporting the item from where you made it/bought it to where you hand it off to the customer, any taxes on that particular item (like import duties), etc.

Unit margin is an important number to account for and work to maximize, basically because you assume that as the number of units you sell increase, your fixed costs become less and less relevant to your overall company profit. But unit margin is always higher than overall company profit margin.

EDIT: Also, obviously, unit margin varies by sku. The iPhone 5s and the iPad Air are probably the highest-margin items that Apple sells (some of their Macs may compete). Things like iPods and iPhone 5cs are likely lower-margin.

[ycaspirant]

Thanks for the clarification. I had actually never heard of this concept of ``unit margin,'' but it makes sense now. It's funny that I managed to go through an entire internship at a financial services firm (which included working with valuation models of AAPL) without ever encountering this concept. I guess it's no surprise that I didn't get offered a job at the end of the internship!