Reply to post: Re: An unsually poor article

iPhone 6: The final straw for Android makers eaten alive by the data parasite?

Charles Arthur

Re: An unsually poor article

>>"Firstly, Apple's pricing is very high and leaves a lot of margin room. Apple simply can't make the volume to change this; or rather, it would be too risky to do it. Apple doesn't need to change strategy, but there is a lot of volume which means a lot of money left on the table."

Apple isn't trying to be Nokia, although last year it had about 10% of all mobile phone sales (not just smartphones; all mobiles). Yes, there is a lot of volume available.

>>"Secondly, OEMs don't need to command such high margins as Apple since their costs are much lower. It's a different business model. PC manufacturers don't have anywhere near the margins of the Macintosh, but there are a lot of PC OEMs."

Low-cost OEMs have lower costs (by definition), but their problem is getting enough scale (= volume) to make the margins work. The comparison with PC OEMs is apt: Sony has got out of PCs, and Toshiba said yesterday it's cutting back on consumer sales (jobs going too) to concentrate on B2B sales. The rest of the PC market is concentrating towards five big Windows PC OEMs, and Apple (6th biggest), of which Apple is the 3rd or 4th biggest by revenue, and probably biggest by profit. I call this the "value trap" and wrote about it at http://www.theguardian.com/technology/2014/jan/09/pc-value-trap-windows-chrome-hp-dell-lenovo-asus-acer

The PC business, when everyone makes something quite similar, drives commoditisation, and that drives smaller companies to the wall. The same happens in the smartphone business.

>>"Thirdly, wearables are a new high-growth sector. Apple's watches don't work without an iPhone, which means they have left the very large Android installed base to Android manufacturers."

That assumes that there will be a useful "attach rate" of Android wearables to Android phones. That's not certain. Also, wearables are high-growth but very low volume at present, so remains to be seen.

>>"If the rate of innovation in wearables and mobiles continues, Google's added-value will be important. The undeniable fact is that if you want to make mobile hardware, you need Android, unless you are Apple. Microsoft will spend a few more billions dollars before it is forced to concede this; everyone else has worked it out already (vale Tizen)."

Microsoft is offering Windows Phone licences free, though those OEMs face the same problem: without scale, you're stuffed.

>>"Fourthly, how does this theory explain the rush of PC OEMs into Chromebooks, which are low-priced, low margin and also run a free Google OS? Because OEMs make money on low margins. This is what they are good at. The idea that only Samsung and Apple make money from smartphones is wrong. It may be that some manufacturers can't move with the times on this, but plenty will rise to take their place. At this point in the lift of microcomputers, Dell, Asus and Acer didn't exist yet."

PC OEMs are rushing to Chromebooks I think because they can charge roughly the same as a PC, but need fewer components. That means more profit. At least you'd hope so. They aren't high volume though (a few million per quarter total) so again, not dramatically helpful. And if they do take off, everyone will pile in and drive the price down and you'll see a few making money, and others forced out.

>>"Fifthly, you gloss over the middle of the market as if this is a bad place to be, but in fact it is where most of the money is."

It's actually where the money is not. Samsung and Apple have pretty much all of the high end; HTC and Sony are getting badly squeezed because you can get products that do much the same as them for much less from Motorola etc. The market is going "dumbbell shaped", in the words of a Qualcomm executive - flight towards the high and low end. The mid-market is the worst place to be, because you don't know whether to cut prices (to attract customers) or emphasis features (to undercut high-end players). The latter hasn't worked for HTC because Samsung and Apple have more marketing money. Cutting prices is a short cut to losses.

It's a deep problem. In the end, in a commoditised market, you get a few winners, some more small players ekeing out an existence, and many more licking their wounds and looking for the new thing.

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