Apple's secret weakness: its margins aren't as high as you think

55 per cent profit margins sounds like a lot, but someone's got to pay for iOS.

Working my way through AnandTech's mighty iPhone 5 review (and I mean mighty: this thing weighs in at just over 20,000 words), a paragraph jumped out at me. Anand Shimpi writes:

Ironically enough, if Apple’s competitors would significantly undercut Apple (it doesn’t cost $599 - $799 to build a modern smartphone) I don’t know that the formula would be able to work for Apple in the long run (Apple needs high margins to pay for OS, software and silicon development, all of which are internalized by Apple and none of which burden most of its competitors).

This is the flip-side of Apple's much-vaunted vertical integration. The company notoriously earns margins of 55 per cent on the iPhone 5, and that's often taken to mean that its profitability is entirely a result of its ability to charge far above its competitors (even though that's not entirely true any more either).

But while the company charges 55 per cent more than it costs to build each iPhone, it has a lot of fixed costs. It develops its own OS from scratch (while its competitors piggy-back off Google), and is increasingly moving to its own processor development and fabrication as well. That money has to come from somewhere.

Of course, the company remains astonishingly profitable even after the costs of development are accounted for, so starving it out will take a while. But it isn't quite as invulnerable to cost pressures as many think, and that could be something which competitors — particularly Samsung, which is the only other smartphone manufacturer to have nearly enough profit to fight that battle — could use to their advantage.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Benn vs McDonnell: how Brexit has exposed the fight over Labour's party machine

In the wake of Brexit, should Labour MPs listen more closely to voters, or their own party members?

Two Labour MPs on primetime TV. Two prominent politicians ruling themselves out of a Labour leadership contest. But that was as far as the similarity went.

Hilary Benn was speaking hours after he resigned - or was sacked - from the Shadow Cabinet. He described Jeremy Corbyn as a "good and decent man" but not a leader.

Framing his overnight removal as a matter of conscience, Benn told the BBC's Andrew Marr: "I no longer have confidence in him [Corbyn] and I think the right thing to do would be for him to take that decision."

In Benn's view, diehard leftie pin ups do not go down well in the real world, or on the ballot papers of middle England. 

But while Benn may be drawing on a New Labour truism, this in turn rests on the assumption that voters matter more than the party members when it comes to winning elections.

That assumption was contested moments later by Shadow Chancellor John McDonnell.

Dismissive of the personal appeal of Shadow Cabinet ministers - "we can replace them" - McDonnell's message was that Labour under Corbyn had rejuvenated its electoral machine.

Pointing to success in by-elections and the London mayoral election, McDonnell warned would-be rebels: "Who is sovereign in our party? The people who are soverign are the party members. 

"I'm saying respect the party members. And in that way we can hold together and win the next election."

Indeed, nearly a year on from Corbyn's surprise election to the Labour leadership, it is worth remembering he captured nearly 60% of the 400,000 votes cast. Momentum, the grassroots organisation formed in the wake of his success, now has more than 50 branches around the country.

Come the next election, it will be these grassroots members who will knock on doors, hand out leaflets and perhaps even threaten to deselect MPs.

The question for wavering Labour MPs will be whether what they trust more - their own connection with voters, or this potentially unbiddable party machine.