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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The Brexit ministers who just realised reducing immigration is a problem for them

Turns out there's a teeny tiny hiccup with reducing immigration...

On 27 December 2015, the then-backbencher MP David Davis declared he was "voting out" in the forthcoming EU referendum. Among his reasons was the "disastrous migration crisis". 

Fast forward 14 months. Now the minister responsible for Brexit, Davis has been spotted in the Latvian capital of Riga, with a slightly different message

He admitted it was not plausible that Brits would immediately take jobs in the kind of low-paid sectors like agriculture and social care currently staffed by migrant workers. 

Immigration restrictions "will take years" to be phased in, he added. 

Davis is only the latest minister in the Brexit government to realise that immigration might be down to more than some pesky EU bureaucrats. Here's when the penny dropped for the others: 

Andrea "Seasonal Labour"  Leadsom

During the EU referendum campaign, Brexit charmer-in-chief Andrea Leadsom told The Guardian that immigration from EU countries could “overwhelm” Britain, and that her constituents complained about not hearing English spoken on the street. 

But speaking to farmers in 2017 as Environment secretary, Leadsom said she knew “how important seasonal labour from the EU is, to the everyday running of your businesses”. She said she was committed to making sure farmers “have the right people with the right skills”. 

Sajid “Bob the Builder” Javid 

The Communities secretary Sajid Javid backed the Remain campaign like his mentor George Osborne, but when he was offered a job in the Brexit government, he took it.

Javid has criticised immigrants who don’t integrate, but it seems there is one group he doesn’t have any qualms about - the construction workers who build the homes that fall under his remit.

As early as September, Javid was telling the FT he wouldn’t let any pesky UK border red tape get between him and foreign workers needed to meet his housebuilding targets.

Philip “Citizen of the World” Hammond

So if you can’t kick out builders, what about that perennially unpopular group of workers, bankers? Not so fast, says Philip Hammond.

Just three months after Brexit, he said the government would use immigration controls “in a sensible way that will facilitate the movement of highly-skilled people between financial institutions and businesses”. 

As a Chancellor who personally backed Remain, Hammond is painfully aware of the repercussions if the City decamps to the Continent. 

Greg “Brightest and Best” Clark

The Business, Energy and Industrial Strategy secretary backed Remain, and has kept his head down since winning the meaty new industrial brief. 

Nevertheless, he seems willing to weigh in on the immigration cap debate, at least on behalf of international students. Asked whether the post-study work visa pilot should continue, Clark said the government wanted to attract the brightest and best.

He continued:

"We have visa arrangements in place so that people can work in graduate jobs after that, and it is important that they should be able to do so."

Jeremy "The Doctor" Hunt 

The Health secretary kept his job in the turmoil of the summer, and used his conference speech to toe the party line with a pledge that the NHS would rely on less foreign medical staff in future.

The problem is, Hunt has alienated junior doctors by imposing an unpopular contract, and even those wannabe medics that do sign up will have to undergo half a decade of studying first.

Asked about where he plans to find NHS workers in Parliament, Hunt declared: “No one from either side of the Brexit debate has ever said there will be no immigration post-Brexit.” He also remained “confident” that the UK would be able to negotiate a deal that allowed the 127,000 EU citizens working for the NHS to stay. 

So it turns out we might need agriculture and construction workers, plus students, medics and even bankers after all. It's a good thing the government already has a Brexit plan sorted out...
 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.