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.

Photo: Getty Images
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The Fire Brigades Union reaffiliates to Labour - what does it mean?

Any union rejoining Labour will be welcomed by most in the party - but the impact on the party's internal politics will be smaller than you think.

The Fire Brigades Union (FBU) has voted to reaffiliate to the Labour party, in what is seen as a boost to Jeremy Corbyn. What does it mean for Labour’s internal politics?

Firstly, technically, the FBU has never affliated before as they are notionally part of the civil service - however, following the firefighters' strike in 2004, they decisively broke with Labour.

The main impact will be felt on the floor of Labour party conference. Although the FBU’s membership – at around 38,000 – is too small to have a material effect on the outcome of votes themselves, it will change the tenor of the motions put before party conference.

The FBU’s leadership is not only to the left of most unions in the Trades Union Congress (TUC), it is more inclined to bring motions relating to foreign affairs than other unions with similar politics (it is more internationalist in focus than, say, the PCS, another union that may affiliate due to Corbyn’s leadership). Motions on Israel/Palestine, the nuclear deterrent, and other issues, will find more support from FBU delegates than it has from other affiliated trade unions.

In terms of the balance of power between the affiliated unions themselves, the FBU’s re-entry into Labour politics is unlikely to be much of a gamechanger. Trade union positions, elected by trade union delegates at conference, are unlikely to be moved leftwards by the reaffiliation of the FBU. Unite, the GMB, Unison and Usdaw are all large enough to all-but-guarantee themselves a seat around the NEC. Community, a small centrist union, has already lost its place on the NEC in favour of the bakers’ union, which is more aligned to Tom Watson than Jeremy Corbyn.

Matt Wrack, the FBU’s General Secretary, will be a genuine ally to Corbyn and John McDonnell. Len McCluskey and Dave Prentis were both bounced into endorsing Corbyn by their executives and did so less than wholeheartedly. Tim Roache, the newly-elected General Secretary of the GMB, has publicly supported Corbyn but is seen as a more moderate voice at the TUC. Only Dave Ward of the Communication Workers’ Union, who lent staff and resources to both Corbyn’s campaign team and to the parliamentary staff of Corbyn and McDonnell, is truly on side.

The impact of reaffiliation may be felt more keenly in local parties. The FBU’s membership looks small in real terms compared Unite and Unison have memberships of over a million, while the GMB and Usdaw are around the half-a-million mark, but is much more impressive when you consider that there are just 48,000 firefighters in Britain. This may make them more likely to participate in internal elections than other affiliated trade unionists, just 60,000 of whom voted in the Labour leadership election in 2015. However, it is worth noting that it is statistically unlikely most firefighters are Corbynites - those that are will mostly have already joined themselves. The affiliation, while a morale boost for many in the Labour party, is unlikely to prove as significant to the direction of the party as the outcome of Unison’s general secretary election or the struggle for power at the top of Unite in 2018. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.