Ronnie05's Blog

Apple: Pink of Health (Part II)

Posted in Mobile Devices and Company Updates by Manas Ganguly on September 1, 2010

Continued from an earlier post, which tries to explain why Apple is Apple, a cult brand, a maverick, one of the highest market cap compnaies in the world and a huge money minting machine. It may have detractors against its “closed”/”walled garden approach” but the bottomline is that with 3% of market share by volume, Apple contributes 48% of the smartphone profits.

3.Economies of Scale

The lean portfolio with only a handful of products, each selling in great quantity allows Apple to buy components in massive quantities.Except for iPhone 4, all iPhones and iPod touch use the same display for 3 years now. They have 5 notebooks and 3 of them all use the same 13-inch display. Something like 75% of the CPU’s they have used in the past 5 years are Intel Core 2 Duo, and the rest were Xeon, with the exception of the recently added i series. Similarly, they use the same OS X core operating system on all of their devices. The kernel in iPhone 4 on an A4 chip is the same kernel as Mac Pro on 12 core Xeon. When they added Exchange to iOS, it showed up in Mac OS in the next release because they had actually added it to OS X, which is under both iOS and Mac OS. That builds huge economies of scale for Apple reducing the cost overheads of spares and components.

Apple had only used one iPhone display for 3 release of its iPhones, and they used it again in iPod touch. They probably bought 100 million of that exact same display, and they are still buying and using them right now in the low-end iPhone and the iPod touch. They paid much less per phone for the display than what the display cost on any other phone, which typically sell less than a million devices each. The 90 Android phones are each a custom job, much more expensive, much less profitable.

4.Defining Consumers

Henry Ford was once quoted that if he had heard his consumers, he would possibly never have made a car. He would have built faster horses instead.

Apple doesnot possibly look at the MBA-style consumer approach methodologies in terms of determining its products. Apple’s understanding of the “need” bolstered with great judgement of world class design, starts with no consumer particularly.Add to that,state of the art software, OS and iTunes make it an undefeatable combination when it comes to PROFITS.It moves through the cycle of enthusiast, tech geek, prosumer, maven route before massifying itself into mass consumer usage.

Apple’s impressive run at the bourses has multiplied its market cap 3X over the last 2 years

5.Absorbing Profits from multi consumer segments

Apple has two other iOS devices, the iPod Touch (due for a refresh this September) and the iPad, that are absorbing profits from other segments of consumer electronics; music, casual gaming, and soon, photography, video, and in the not too distant future, near field wireless. all making platforms for advertisers or hardware makers or wireless carriers instead of making the best consumer product. Apple thus is leveraging the same platforms for accessing different consumer segments and usages. What makes this special is the Apple “way and design” which helps redefine the markets, consumers and product segments.

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