Apple makes a quid on magical iPhone
By Gareth Powell
There are two fairly distasteful aspects of computer journalism which come together in one story. The first is a strong dislike for Apple and especially for Steve Jobs.
I do not use a Macintosh at the moment — most of my readers use PCs — and I do not use an iPod because I only want music in my ears when I am running. So I have a $25 cheapie. And I was wearing black turtle necks before Steve Jobs.
The second is an inherent dislike of any company which so orders its affairs that it makes a profit.
I have little or no time for market research companies but, initially, iSuppli seems to be on the side of the angels in working out that the bill of materials (BOM) for the iPhone will cost Apple about $250 for the 4GB version.
One journalist takes that as a monstrous margin. He goes so far as this means that Apple is ‘creaming’ — his word not mine — the punter for half the cost. Then goes on to say: ‘And the 8GB model is set to make the same amount of dosh if the beasts sell half as well as Apple hopes.’
To make a 50% margin on cost of manufacturing leave alone just the bill of materials is not a crime. Indeed, it is solid business sense.
To get this into perspective know that hard cover book publishers work on a seven times mark-up. That is if the book costs you $14 the sheer cost of production is $2 which makes Steve Jobs and Apple look like the benefactors of the ages.
Left out of iSuppli’s figures (and in fairness to iSuppli nowhere is it suggested that these figures are anything but base manufacturing figures) ae overheads, warehousing, logistics, cost of sales, publicity, advertising and, yes, a reasonable profit.
Does this leave Apple in a happy position?
Compared to Sony it is in paradise. It costs more for Sony to make a PlayStation 3 then it gets back over the counter. It is, in truth, subsidizing the customer. This is not a tried and true way to keep a company on a profitable path.
This pricing also, in theory, allows Apple, at the right time, to give sales an extra push by throwing in a discount. Jagdish Rebello, PhD, director and principal analyst with iSuppli, said, ‘With a 50 percent gross margin, Apple is setting itself up for aggressive price declines going forward.’
Forget for the moment that the sentence is not grammatical. It is, in theory, correct. Apple can, if the going gets tough, cut prices although this has never been the Apple style.
Where Jagdish and his accomplices go wrong is in comparing the Apple iPhone with other products. iSuppli estimates that 14 music-enabled mobile phones with features that compete closely with the Apple iPhone already are shipping from manufacturers including Nokia, Motorola, Samsung Electronics. and LG.
And what, pray, has that to with anything? It simply is not relevant. If I want a phone with style and pizzazz I will get an iPhone.
Tina Teng, analyst, wireless communications, for iSuppli came up with the totally daft suggestion that the closest competitor to the Apple iPhone is LG’s KE850, which will ship later this year.
She also said, bless her little cotton socks, that other phones with similar characteristics include Nokia’s N800, although this product is aimed more at niche markets than the broad-appeal Apple iPhone.
Teng said she expects mobile-phone OEMs to introduce models designed specifically to compete with the Apple iPhone.
Stuff and nonsense.
If you have an iPhone you are making a declaration that you are cool, hip and not very poor.
If I am in bar and there are pleasant people of the opposite sex whose attention I would like to attract it would not work, I promise you, with a LG KE850 nor yet a Nokia’s N800. But try it with an Apple iPhone. Then they will be all over me like a rash. And I am uglier than Steve Jobs.
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