Here’s the deal. Apple’s executives are smart, highly compensated, and– regardless of what we think about an issue– don’t do what is stupid. Whatever you think is happening with iPhone, iPad, or Mac, they’ve already thought about it.
The slowdown in smartphone sales? Apple’s executives knew years ago that it would happen and planned accordingly. Apple’s high prices are there for multiple reasons. Profits? Yes. And to handle just what is happening in the market today.
Margins, Meet Profits
Much of the tech and market news over the past few weeks have been sourced back to caterwauling from inexperienced technology writers and market analysts who should know better than to bash what they obviously do not understand. Yet, that’s how yellow journalism works in the misinformation age.
Let us agree to a few basic factoids before launching into Apple’s adjustments for market trends that negatively impact sales. For most of the past four years, iPhone, iPad, and Mac sales have remained relatively flat but at record levels (except for iPad, which has gone down and up as the market changed). Regarding iPhones, Apple owns more than 60-percent of the entire industry’s revenue, more than 80-percent of the entire industry’s profits, and the largest gross margins among purveyors of fine technological hardware.
Gross margins and high unit sales. That’s where Apple gets those enormous profits each quarter. Higher prices mean higher gross margins which means higher profits. It’s math.
So, what happens when the market turns sour as it has so far in late 2018? Apple, as with any company that sells a product, needs to adjust accordingly, and that means discount bundles, packages, promos, trade-ins, and anything else that helps spur demand. Unsold hardware doesn’t go back to the factory. Apple– as with Samsung, Google, Lenovo, Microsoft, Dell, HP, and all those cheap Chinese knockoff makers– reduces prices to move product.
That’s the nature of business, folks. If most of the iPhone competitors have lower prices, lower gross margins, and almost no profits, then how does Apple fare when prices must be cut?
Very well, thank you. Yes, discounts and sales and the like have a negative impact on gross margins, and that impacts profits. Which of the aforementioned iPhone competitors is best positioned to handle a downturn in the market?
The one with the highest prices, the largest gross margins, and the most profits. Who? Apple.
You get that, right?
All this negative caterwauling about how Apple is doomed is utter nonsense from purveyors of yellow journalism who gin up such silly controversies for the sake of advertising. Apple is a premium, aspirational brand, so when Apple drops prices on anything, guess which companies get bit the most? Those aforementioned competitors who already have lower prices, lower gross margins, and almost no profits.
Apple handles a sales slowdown the old fashioned way. On the surface, in public, you’ll see what we see already; discounts, promotions, bundles and packages, trade-ins, etc. Below the surface and out of sight, we’ll see Apple make deals with big retailers (think Best Buy, Target, et al) and cellphone carriers (AT&T, Verizon, T-Mobile, et al) so they can create attractively priced bundles like free devices or BOGO (buy one, get one for x-amount off or free).
Apple is doing all of that because smartphone sales have been stagnant for a few years thanks to a maturing market that also impacts iPhone sales. The growth period has been gone for a few years so the market is in retraction. What goes around, comes around.
Can you guess which technology company is best prepared to prosper in such a market?