The N900 Strategy and Why the iPhone is So Hard to Beat
 

I thought this was a pretty ineresting, if brief, article about Nokia's strategy with the N900 and Maemo and why the iPhone is such a formidable opponent:

http://www.businessweek.com/globalbi...110_524881.htm

It makes two significant points, that I think counters some arguments I frequently read in this forum.

1) The article points out that Apple now makes more money on mobile phones than Nokia, 1.6 billion for Apple in the 3rd Quarter of 2009, 1.1 billion for Nokia. I often see people argue against Apple's dominance, by pointing out how Nokia sells so many more handsets than Apple the comparison is ridiculous. Indeed, Nokia sells fifteen times as many handsets. But Apple is running away with the cream of the market, the people who spend the most money on phones. At the end of the day, it's a very small segment of the market that has most of the money. Nokia just can't afford to lose this segment of the market, which has basically already happened. And the growth of Android is only going to compound the problem.

2) The article points out that because of the popularity of the iPhone in the U.S., the U.S. has become the major source of cell phone applications. Hence even though the U.S. has traditionally not been one of the most important cell phone markets, it now has disproportionate influence over the direction cell phone development is heading in. If you want your app market to take off, you need a platform that's popular in the U.S. Again, Android will only compound this problem for Nokia.

Anyway, I am not an iPhone fan, nor a Android fan. But I think the article is interesting just for thinking about the business dynamics. It turns out the dominance of Symbian, in terms of numbers of handsets its running on, and the dominance of Nokia, in terms of numbers of handsets sold, matters less and less. The number that matters is how much profit. And in that domain, the iPhone is king (I predict in the next couple years, Google/Android will overtake Apple).

Re: The N900 Strategy and Why the iPhone is So Hard to Beat
 

Read this:
Originally Posted by Rauha
Apple does not unveil profits per business line, but Strategy Analytics estimated Apple's operating profit for its iPhone handset unit stood at $1.6 billion in the third quarter, compared with Nokia's $1.1 billion.

vs.

Apple reports fiscal Q4 earnings: $1.67b profit, Mac sales way up, iPod sales down, 'great new products' for 2010link

So, basicly Strategy Analytics thinks that Apple's other busineses (macs,Ipods,iTunes,etc) don't make any profit?

Re: The N900 Strategy and Why the iPhone is So Hard to Beat
 

Interesting stuff. I think nokia has defintely been badly hit in the high end market, and they have lacked a credible alternative. I'm really interested to know though where apple will go next. There will surely be a new iphone out next year, what will they offer to get people to "upgrade" and keep upgrading, as the competition from Android and others increases? They are on a high right now, as they've had a period where essentially no one could compete with the iphone at the top end.

I think increased competition will hit them over the next year or two, unless they pull another rabbit out of the hat with the next model. Their strongest feature right now is the app store -- that is the one area where no one is competing strongly yet, but you'd expect android to make inroads there.

It is frankly phenomenal (almost unbelievable) how much money Apple is making from the iphone. Can their margins be so high on it? Or is that figure including other revenues (exclusivity tie in deals from operators, the alleged chunk of contract money they pocket etc.). I wonder how much the app store makes them!

(Edit: Thanks drm, makes a lot more sense if that is total profits! Lazy comparison by the journo then)

Re: The N900 Strategy and Why the iPhone is So Hard to Beat
 

Yeah the profit figure is a bit misstated.

However unlike Nokia, Apple gets a revenue share in phone contracts which is a big money spinner for them.

Re: The N900 Strategy and Why the iPhone is So Hard to Beat
 

i bet that their key to success was strict locking and bundling with one service provider per country.

please note what was quoted from rauha and keep in mind that profit are always temporary, it is the userbase and sold units that count in the end. if you get 50% profit per unit and your sales decline 20% per year, things aren't so rosy for long.

Re: The N900 Strategy and Why the iPhone is So Hard to Beat
 

OK I think I see where their 1.6 billion from iPhones comes from...

Apple sold something like 7.1 million hadnsets, they've assumed a profit margin from the reports of around 225 dollars per phone. That is a hugely high figure, and would exclude R&D, Marketing costs etc etc.

Nokia has revenue from handset sales of about 6.9 billion (euros -- about 10 billion US). They seem to have assumed Nokia average margin is 10 us dollars per handset, which is mentalism. If that was a like to like comparison, after R&D and sales costs Nokia would be making a huge loss on every phone sold!

For completeness, Nokias handset business posted a profit of around 850 million (US) (just took the bottom line and canceled out the losses from Nokia-Siemens for this rough figure). Their assumption then would be that all Nokias R&D and sales and marketing costs amount to about 300million to get their 1.1billion figure!

It's a nonsense comparison with made up numbers, essentially.

Nokias figures ARE bad (for them), but it's handset business's profit of 850 million compared with Apples profit of 1.6billion (across all it's markets) isn't so bad...

Re: The N900 Strategy and Why the iPhone is So Hard to Beat
 

That's actually wrong. Strategy Analytics was estimating Apple's operating profit on the iPhone for the September quarter. Whereas the profit Apple reported for the same quarter (and that you're citing) is its net profit.

So you're comparing apples and oranges. The operating profit is calculated before taxes and interest payments are deducted. The net profit includes the deduction of taxes and interest. Hence the net profit is a smaller number than the operating profit. Who knows what Apple's entire operating profit for the September quarter is, but it's much larger that 1.67 billion and whatever that larger number is would be the relevant number to compare to the operating profits for the iPhone alone.

Here's the Reuters story on Strategy Analytics announcement: http://tech.yahoo.com/news/nm/200911...us_apple_nokia. It came out of November 10. Apple announced it's net profits twenty days earlier on October, 19: http://www.apple.com/pr/library/2009/10/19results.html. So obviously Strategy Analytics knew what Apple's net profit announcement was. In fact, they needed Apple's September quarter results announcement, to get the figure for the number of iPhones sold and make their estimate in the first place. So they would have certainly caught any such gross error. Also, obviously any halfway decent news organization, like Reuters, would have caught such an error as well.

Here's the wikipedia article explaining net profits, for those who don't know what it is: http://en.wikipedia.org/wiki/Net_profit.

And here's the articles on operating profits: http://en.wikipedia.org/wiki/Operating_profit, also called EBIT (Earnings Before Interest and Taxes): http://en.wikipedia.org/wiki/Earning...rest_and_taxes.

Re: The N900 Strategy and Why the iPhone is So Hard to Beat
 

Apple has always had huge profit margins for one simple reason: Apple customers (iSnobs) will buy their overpriced and overrated products no matter what because they are hip and cool.

Also, by having everything so damn restrictive their R&D costs are minimal compared to other companies. I mean, look at the iPhone, their software guys only have to support 1 platform, 2 combinations of hardware.

Apple hit the jackpot when they introduced an simple, easy to use smartphone at the exact right time. And having everyone believe it was a bargain at "$199" (really, if you add the subsidized cost Apple makes $600+ per iPhone). It's just a toy though, nothing else.

Apple = marketing gods

Re: The N900 Strategy and Why the iPhone is So Hard to Beat
 

You know, even if you ignore the difference between net profit and operating profit, for those who don't understand it. And even if you forget entirely about estimating what the profit margin is for Apple on the iPhones vs for Nokia on it's many different phones. You still have to contend with this set of figures:

That's again from the Reuters story: http://tech.yahoo.com/news/nm/200911...us_apple_nokia.

So Apple sold 7.4 million phones and took in $4.5 billion. Nokia sold 108.5 million and took in $10.36 billion. Nokia sold nearly 15 times as many phones, but only took in 2.3 times as much money. It's a different way of telling the same story, without having to worry about Strategy Analytics methods, if you don't understand them. It shows that with a tiny fraction of the handsets, Apple can rake in a comparatively huge amount of money.

Re: The N900 Strategy and Why the iPhone is So Hard to Beat
 

Yes, exactly, Apple has run away with the most coveted customers, those who have the most money. It is only a tiny fraction of Nokia's most high end phones that cost anywhere close to $600. Every single phone Apple sells has a price tag on that order of magnitude.

And the customers with more money are more profitable, not just because the by expensive handsets, but because they pay for more expensive cell phone plans (doesn't Apple get a cut of AT&T's monthly payments? I'm not sure), they buy more apps, they buy more stuff from iTunes. The money that can be derived from just a small percent of the market is staggering (let's not forget that the top 10% of income earners have something like 80% of the world's wealth).