Apple: Soon To Face Severe Margin Compression
Russ Fischer | Nov 18, 2012 04:55AM ET
Apple (AAPL) and Samsung (SSNLF.PK) are about to enter the abyss of price and margin contraction of smartphones and tablets.
The Nexus 4 is, perhaps, the beginning volley of the price war that ultimately ends high profit margins for Apple and Samsung smartphones forever. The Nexus 4 is a capable competitor to the iPhone 5. Offered by Google (GOOG) at a an unlocked price of $299, this product is only the beginning of a serious migraine for Apple and Samsung. There are already capable tablets from Amazon (AMZN) and Google available for little more than the cost of manufacture.
Previous price wars in the consumer electronics business have been brutal. This one promises to be brutal++.
There is always price attrition in high technology consumer products once the feature set and functions become universal and uniform in usability among the various device suppliers.
Shocking price attrition on electronic products has never been averted in the past. Four function calculators cost $249 40 years ago, five years later they were $5.
PCs cost $5000 in the 1980s. Today they are literally thousands of times more capable and sell for $500.
The same thing has happened to flat screen televisions and VCRs, and DVDs, video games and every other consumer electronic device that I can think of.
Voice only cell phones (called cellular radios, back then) started out at $4500 in the 1980s. I know, I bought five of them. Voice only phones are now infinitely better and are free. Well, sort of free. They still cost the service provider some small amount, but they are truly free to the consumer.
It is now the time that smart phones will enter the Black Hole of price cutting phase in their life cycle.
As though the accepted brutality of technology price declines isn't bad enough, the smartphone (and tablet) price wars will be even worse. Led by companies like Google and Amazon (AMZN), whose very business models are dependent on control of the mobile devices, and absolutely don't need earnings from the devices themselves, this price war could be over by next summer.
Google can't leave their business fortunes in the hands of Apple and Samsung because they can cut off the Google "click" revenue by using Intel/Motorola agreement seems redundant in view of the Google purchase of Motorola Mobility, but it does indicate that Motorola, Google and Intel are in deep cooperation.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.