As you read this post and take a couple minutes doing so, Apple will have sold a hundred more iPhones. In the last quarter apple reportedly sold a staggering 34,000 iPhones every single day and posted a profit of $18 billion. Never in the history before has a single company made such a huge profit in a single fiscal quarter. The 74.5 million units of the iPhone that were sold in the last quarter accounted for over two-thirds of Apple’s $74.6 billion revenue. This leaves Apple with a mountain of a cash, literally, of a $178 billion, money enough to buy out other tech giants like Intel and IBM.
The strategy followed by Apple is rather simple and old fashioned, selling highly desirable objects at fat gross margins, which rose to 40% last quarter. When said in layman language, the production cost of an Apple iPhone is marked up by 40% before selling it into the market. The only reason why smartphone makers using Android and Microsoft platforms do not make so much money is because they do not charge such a high premium for their phones. Apple is the largest company in the world by market capitalisation and profits, but, does its flagship product, the iPhone, deserve the iCrown?
Apple started in a garage, making motherboards of computers. Later, it’s main focus was to put a personal computer in every home. That meant flawless design, a user friendly interface and ofcourse, an affordable price tag. Apple made sure through it’s ad campaign of the Macintosh that ‘1984 will not be like 1984!’ But, did it prove the same in 2014, thirty years later when it launched iPhone 6 and 6 Plus?
The huge screen sizes of these phones enabled Apple to venture into the ‘phablet’ category of the market. Now it posed direct threats to its Android counterparts selling these large phones. But, is it worth spending so much on an iPhone. Fans say yes! The user experience of an iPhone is impeccable. Such that no other smartphone is able to provide. But what about affordability? An iPhone now finally provides third party keyboards, one have-it-all notification bar and a little bit of customisation options over and above the large screen. If all of this would not have been introduced, an Android user switching over to iOS would’ve got bored using this phone! It surely means Apple has taken a few steps in the right direction with its new gen phones.
Let us look at other products. The last quarter actually saw a fall in the sales of MacBook and iMac, almost by 9%. The share of these products in the revenue of the company is constantly declining. After the iPod, the company has to look at other gadgets that will spin some cash for it. One such product might be the smartwatch that will go on sale this year. The watch will ensure additional revenue for Apple from its App Store, as there will be a new found excitement from the users for apps that will work exclusively with the watch. Apple also has launched Apple Pay, a contactless payment system which will drive dollars to Cupertino. Apple does this very well, binding its customer in an environ of integrated hardware and software, giving way to exclusivity. However, Apple has to be wary of it being increasingly dependent on the iPhone and also divest into developing other gadgets and more importantly, making them a tad bit affordable. But till the time iPhones are making money for this company, Tim Cook smiles!