Apple’s iPhone strategy: Market share or profit margin?

“An interesting little piece of data that highlights Apple‘s basic business conundrum,” Tim Worstall writes for Forbes. “Should they be going for market share or should they instead be looking at maintaining profit margins? Obviously, either strategy would be aimed at maximising long term shareholder value. But what actually is the right answer to the question?”

Worstall writes, “Why it’s important is here: ‘In a research note released today, Nielsen examines the potential for smartphone growth in the BRIC region (Brazil, Russia, India, China), where, in many cases, feature phones still dominate. According to the firm’s findings, only in China are smartphones predominant, where they’re now owned by two-thirds of mobile subscribers, as of the first half of 2012. However, in India, Russia and Brazil, users are only beginning to transition away from feature phones to newer, app-capable devices.'”

“I have no idea which way they’ll go: and I’m rather wondering what the past experience of the company will lead them to do as well. The 80s and 90s saw them stick with Macs as being the premium product at a premium price to Windows based machines,” Worstall writes. “And Boy Oh Boy did market share collapse! As did the company, nearly. Will they think that this time it will be different or will they do something different this time around? There’s quite a lot riding on which way they go really.”

Read more in the full article here.

MacDailyNews Take: Since Steve Jobs returned, Apple has never “cheaped out” in a quest to gain market share. From the iPod shuffle to the Mac mini to the iPad mini, Apple has created full-featured, quality, premium-priced products (in relation to rivals’ junk) that may be considered “entry-level” only in comparison to Apple’s other products. With history as our guide, we have no absolutely reason to believe it will be any different with iPhone.

Again, you can bet that if Apple enters the pre-paid phone market in emerging markets, they most certainly will have margins and they will make a profit on each device sold.

Apple doesn’t sell hardware at cost or low margins. And, by the way, Tim Worstall, the Mac won. 20+ million units per year to the worlds’ best and most loyal customers and every one of them sold for a profit. The Mac has outgrown the Windows PC market for 27 consecutive quarters – and counting. See, in his blind race to the bottom, even Mikey Dell couldn’t make it up in volume.

Our own SteveJack explained all of this back in October and it was reiterated by Apple’s Phil Schiller just last week.

Please see the related articles below.

[Thanks to MacDailyNews Reader “Rainy Day” for the heads up.]

Related articles:
Phil Schiller: ‘Apple has always focused on providing the best products, we’ve never blindly chased market share’ – January 11, 2013
Newsflash: Apple sells premium products at premium prices to premium customers – October 23, 2012

22 Comments

    1. Yes indeed.

      A- Make millions of dollars per quarter and keep adding to that bank account.

      or

      B- Make little to nothing each quarter, but boy do we have market share.

      Stupid analysts: You. Do. The. Math.

  1. Its really funny to see how WS is “punishing” apple because of market share. Apple couldn’t care less of what wall “screw” bozos or Larry “Ballmer” Page thinks, with more of 150 BILLION on the pocket, bring them on!!!
    That’s the main difference between apple and the rest: While Google, Microsoft, sammy and Nokia are fighting for a few cents and market share, apple is very well focus in getting the best devices and services in the world, that is why the rest of the industry and the fools at Wall Street react so badly and so late always.

    1. WS is pissed because Apple does not have to borrow money from “their” banks and mostly because Steve Jobs could care less of what went on at WS.
      Now they hope to control the “new” guy at Apple. Hopefully he gives them the finger and Apple just keeps on doing what they have been doing for the past 10 years:

      Mopping the floor with the competition.

    2. Q: Why do businesses exist?

      A: To make money. that should always be the first priority. You only make things and sell them as loss leaders if they are crap anyhow, but if its made well, then people will pay, they arent that stupid. The term “You get what you paid for.” rings true.

      1. But the problem is that some of the least profitable stocks on Wall Street are getting very high share gains. Individual investors say buy a stock for fundamental reasons and I think that’s the way to go, but when I see companies making tiny profits and they’re they’re cleaning up on Wall Street, I have to question my decisions. I’m in it for the long haul and I really don’t care much for moving my money around.

        You take a stock like Netflix. I’ve used their streaming service and it’s nice, but seriously, Apple could duplicate that service without breaking a sweat and probably use its own servers. Yet Netflix is some Wall Street darling making huge gains while Apple can barely hold up its pants. Netflix is the ultimate one-trick pony that may even lose to Amazon, although, IMHO, I think Amazon’s Prime streaming service pretty much sucks but it’s OK as a toss-in service for Prime users.

        Amazon!!! I don’t even want to talk about that stock. I absolutely love the service because I’m just a lazy shopper. However, how can the share price be actually more than half of what Apple’s is considering it makes almost no profits. Something is just plain screwy. It’s either Apple or Amazon or both. I’m sure it’s Amazon because a P/E of 3600 is just too unusual. How is it even possible for investors to keep pouring money into something like that and Jeff Bezos doesn’t even release certain sales numbers. And yet they call buying Apple a risk.

        So, that’s two companies that seem to be profitable for shareholders where “You get what you paid for doesn’t ring quite true.” I’d say those shareholders are getting far more than what they paid for from companies will little profits.

        1. Professional stock traders do not buy stocks based on how they feel about a company’s products. They buy and sell stocks based on how they feel a company’s stock will perform within the time window in which they are operating, for the SOLE reason of making money.

          Making money can mean collecting dividends, recognizing tax savings and therefore profits, or straight profit in terms of buying low and selling high. It can also involve margin sales and other ways to make money regardless of the company’s actual product performance.

          Using a company’s stock price and its recent movement as a judge of the company’s real-world performance is just silly. While performance on the markets may trend along with sales performance, it often does not.

          1. All points well taken, Bizlaw.

            That said, LB48 cited two excellent examples of tech market abnormalities. Amazon and Netflix look like nothing more than status stocks all wrapped up in WS love. But not the same consideration, only condemnation, for Apple with higher margins, P/E advantage, billions in bank, zero debt, industry leading products, etc.

            Just happens, right? I don’t think so. Sad to say, we may be witnessing the greatest market manipulators of all time.

  2. Why do people have such lousy memories? Apple’s Mac never had a dominant market share to lose to Microsoft and Windows has hardly killed the Mac, which has outperformed the Windows PC market for 27 consecutive quarters.

    I wish I could lose like Apple.

  3. I have been screaming market share schmarket share ! its the share of the profits that counts! Apples 75% of market profits is what i want to see. this time Apple has reached a critical mass with its products and will not slip under a cheap alternative like windows offered . Windows always made the user feel “everybody is using this it must be only me who cant get it to work ” using mac products has taught too many people that a device is supposed to do what you want it to do with out a manual and tech support . apples true talent is in perceiving what the user is most likely to want to do and setting up for that outcome instead of starting the app dumb and expecting the user to figure it out , Apple will win customers as it always has one at a time
    and this time the installed base is too large and too loyal .
    switchers to android will be back (i assure you) there will always be customers for the second class goods just not this one

  4. BRIC countries have a great potential for ‘premium’ smart phones. There are millions of well heeled people at the top of the economic food chain in these countries who will want to buy quality phones. Those who want to appear to belong to this group will also buy quality phones but skip buying luxury cars and homes. Apple’s present mix of quality products will garner the lion’s share of the profits in these countries too.

  5. Both, but they will absolutely not sacrifice one for the other and cash (profit) is king.

    I was very, very young when my parents got the Apple 2 and don’t think it was low cost by any means. Apple has always sold products with a profit to fund research for new products to the point it almost killed the company. Companies now days seem to try and recoup R&D cost with the introduced products.
    While turning a small profit for shareholders.

    Apple has the cash to change many different industries from renewable energy to energy storage to how we interact with appliances. Yes, I could one day see where Apple is selling connected appliances from refrigerator, microwave, oven, coffee maker, clothes washer/dryer, heater, air conditioner the list goes on and on. If or when this happens I am sure the stock will go down because there is no ‘profit’ in the segment. Wall Street and analyst will never realize that it’s not the segment that is unprofitable but that current players have not found a way to be profitable.

    Innovation is about evolution. At Apple that is how they approach product development. It’s rare that Apple truly develops something unique. But they are great at bring technology together in a way everyone wants but didn’t know.

  6. The smartphone business is very different from the PC business. People don’t replace their PCs every 1-2 years, they don’t carry their PCs with them everywhere they go, and not everyone wanted or could afford a PC.

    Affording a mobile phone is very easy for the vast majority of the world’s population. It may not be a top-of-the-line iPhone, but the world’s population uses mobile phones extensively, and has a much higher adoption rate than PCs.

    Apple doesn’t need to own market share to sell billions of iPhones. Let a plastic crap phone maker take the low profit, high margin end. So what. Be the product people aspire to own. Be the model ecosystem. And sell the highest quality, most durable smartphone at a very competitive price. That’s the iPhone, and it and Apple will do just fine with the current formula.

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