Marius Hoffbauer's Blog

The Potential of the iPhone

March 09, 2013

Inspired by Benedict Evans piece on the cheap Apple phones potential for Apple’s bottom line here, I want to do some thought experiments myself. So, lets do some calculations! I’ll start off with some numbers, make some assumptions and end with how many iPhones (or phones made by Apple), for how much revenue and profit, Apple could sell by Q4 of 2017.

First, lets say that Apple extends their iPhone product line with two devices that have recently been in the rumor news; The iPhone+ (5inch high end iPhone) and the iPhone Nano (200-300$ high-low end iPhone). I won’t make any predictions what these might entail spec-wise in this post, I’ll just say they’ll exist and they’ll be popular.

For this I’ll declare the iPhone+ ASP to be 640 USD with a margin of 50% and the iPhone Nano with an ASP of 220 USD and a margin of 35%.

Now some numbers we know currently, I won’t cite them, cause I’m lazy, but they are probably somewhere close to right, do your own research, dammit.

In Q4 of 2012

1. The standard iPhone

Lets assume it just grows with the market, in that case Apple would sell 63.7 million standard iPhones. At the same ASP that would be 40. 8 billion USD revenue, with margin of 50% that’s 20.4 billion USD absolute margin.

2. The iPhone+

Like I said Samsung probably sold around 30 million of these. Maybe there were another 10 million sold altogether by other manufacturers. These 40 million, again, would grow to 53 million. Here’ll I make a contentious claim, I think Apple can get 50% of that market by competing with 4.5+ inch phones, and sell 26.5 million units. Standard iPhone ASP puts that at 17 billion USD, same percentage gives us a gross margin of 8.5 billion USD

3. The iPhone Nano

As for the rest; After we’ve taken out the high-high end of 117 million phones, we are left with 483 million other phones, most of them probably some sort of smartphone. If Apple can extend the strategy it already followed with the iPod it could perhaps grab 15% of that market, which gives us 72.5 million iPhone Nanos. With the ASP and margin as previously discussed that would generate revenue of 16 billion USD and the margin would be 5.6 billion USD.

Coming back to the title of this piece, I believe that the potential of Apple’s iPhone line alone could be 162.7 million units sold which creates 73.8 billion in revenue and 34.5 billion (which is more than the revenue that Apple currently makes with the iPhone actually) in gross margin. ASP in that case would be around 450 and the percentage margin 46.7%

If this were to come true, it would mean Apple multiplies its revenue from the iPhone by 2.41 times from 30.6 billion to 73.8 billion and its gross margin by 2.25 from 15.3 to 34.5 billion. It would also have 27.1% market share up from 10.6% currently. Quite a lot of potential for just one of their product lines.

Now we play the waiting game.

If you’d like to tell me how wrong or right you think I am, why not drop me a line on twitter @mhoffbauer

Market Categories - iPhone vs. Galaxy S

February 19, 2013

The Android vs. iOS debate has many oft-repeated narratives that color the perception of the people subscribing to them. You can often tell what camp a person is in, and whose opinions they follow, by looking at these. “Apple makes more profit than anyone” “Android is the winner by market share” “iOS has high quality apps” “Android is an open system” …

One popular narrative is “Apple needs to make a … because someone else is successful with it”. This is mainly repeated about three different categories: A budget phone, a “Phablet” (larger sized phone, screen diagonal of 5 inches and up) and previously a 7 inch tablet.

Hence the rumors of a cheaper iPhone, or a bigger, phablet-like iPhone, or sometimes both. Both a cheaper phone and a phablet could be good categories for Apple to get into, especially a cheap, smaller iPhone aimed to replace the feature phones and low-budget Android phones that are currently replacing feature phones, perhaps an iPod Nano + Phone (but I’m fantastisizing, for fantastisizing is fun) would be something I’d like to see. I digress, back on topic.

This stems from people seeing only whole categories, rather than sub-categories. They look at the tablet market over all and Apple has to worry, because 7 inch tablets sell. Or even more prominently look at the whole phone market, and compare the Galaxy S line and the Galaxy Note line to the iPhone, when they don’t directly compete, as they are already separated by a “non-negotiable” feature (the size of the screen). The fact really is that, not just of course in profit, but also in market share, Apple is the uncontended winner in the 3.5 inch and 4 inch phone category (similar to how they are currently the uncontended winner in the 10 inch tablet market). That means Apple has a growth opportunity by attacking the 4.5+ inch market.

Now, for comparison Apple’s strategy with the iPod (which now has 70% of the market) was to start from the high end and then extend its business to lower price points (Mini, Nano, Shuffle) and different high end form factors (iPod Touch)

Now there is a new example of this strategy, the iPad Mini.

The problem is that, except for Apple, no one discloses any useful numbers in the tablet business. However some high end estimates can be made. Lets start with the Nexus 7. Google kept giving vague numbers in the first couple months how many they might have sold (500 000, 600 000, 1 000 000…) and it appears that they have sold a maximum of 4.8 million (http://ben-evans.com/benedictevans/2013/2/19/nexus-7-maths). The Kindle is likely outselling it and some estimates I’ve read are around 11 million (some of those are of course 8.9 inch devices). Samsung apparently “doubled” its sales of tablets to 7.8 million in the last quarter (of its whole line, whether that includes all Notes or just 10 inch Notes I don’t know) but it is like they won’t have sold much more than 15-20 million altogether since they started selling tablets.

It appears that Apple became, in just one quarter, not just the biggest seller per quarter, but also the biggest seller overall (or close to) of tablets in the 7 inch category. Beating out Google (who has been in the market for 6 months), Amazon (14) and Samsung (28) despite being severely supply constrained throughout the period and the competing devices being sold at miniscule margins or even at cost. And more than that, it seems very possible that within a year they could be the absolute majority seller of 7 inch category tablets.

Taking this information from other categories I would say that it is not Apple that has to make a phablet or a budget phone or a watch or a TV, but instead it is its potential competitors that have to hope and fear that Apple doesn’t, as it would likely eat their profit (if they have any)…and then their market share.

Not “Samsung is successful in that category and now Apple HAS to react”, but

“Apple can react, and if they do, you probably don’t want to be their competitor”

If you’d like to tell me how wrong or right you think I am, why not drop me a line on twitter @mhoffbauer

Steve Jobs

October 06, 2011

I only started following the tech scene in early 2008. Since then I’ve of course read about its past, and I did of course experience some of the bigger events, but it wasn’t really on my day to day radar. So I wasn’t really influenced or exposed to Steve Jobs and Apple until then, perhaps the most significant thing I associated with Apple was that Douglas Adams (another person who died too soon) loved Macs.

I always found it annoying when Apple fans said “He doesn’t get it” or “He gets it”, it felt like it was extremely arrogant and dismissive and I still feel like there can be difference of opinions without creating such zealous for and against groups. I really got into consumer technology around the time the T-Mobile G1 was getting ready and I was squarely in the “Android is awesome, get that!” camp. My main feeling back then was about it being open and therefore having more potential, which I still think it does in many ways, but back then I felt like Apple was doing bad things by keeping their platform closed and only approving what they like. I also was influenced by the “Apple makes overpriced crap” ideas that so many people have and there’s no denying their products can be pricey, but the crap part, I wasn’t really sure about back then either. I hope I was never rude or offensive at that time to people not sharing my opinion, and I do feel like I often said something along the lines of “Yeah the iPhone is a decent device, but…”. Either way, I considered myself in the not-Apple camp, and got offended when Apple zealots would insult Android.

But slowly things changed for me. For one I started following John Gruber, and slowly was brainwashed by his propaganda, but what I think it really started with is the iPad. I was so excited about all the rumors that flew around for it, it sounded basically like the one device I always wanted, and I remember having many talks with people who just couldn’t see it at all and were sure it was doomed to failure. Well, that turned out differently. And especially, it made the “overpriced crap” idea almost disappear for me. The iPad has been for almost two years the best device for the least amount of money in its category. Nothing compared for ages. The other thing that disappeared for me was that I started thinking of iOS devices as consoles, not computers, and that somehow changed a lot for me. I am into gaming a lot, and I get why there is a reason to not open up your console to everybody, you want a certain quality, and that’s what you sell your consumers. I love that Android exists, and I think I’d still buy it over an iPhone, but I am also so glad that Apple exists and that it makes it’s beautiful devices with their walled garden…a most lovely garden actually.

As an aside, I love my iPod touch, I think it is possibly the best consumer electronic device ever created. And amongst some of my friends I have the reputation of being an Apple zealot. Perhaps I just “get it” now.

So Steve Jobs died today (yesterday in California), and it surprised me a lot. I suppose it shouldn’t have, but I didn’t take him stepping down as seriously as it obviously was. I guess I figured, he’ll be on the board for a while, and he’ll get better and he’ll do something great. I know not everyone agrees, but I view him very positively. I think he has done incredible stuff to shape the world we live in and I admired him a lot. So, his death hit me hard, especially for the death of someone I never met, never talked to, didn’t know beyond articles that other people wrote which may have tangentially been related to him. But it also made me think of something else I’ve been thinking about and I think it is mainly due to this quote (I think every single article about his death so far featured the quote, and I understand why, and won’t be left out):

“Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure – these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.”

I (and apparently everyone else) think that is a great quote, not just for someone who battled with cancer, who obviously was reminded of their death in a frighteningly real way, but for all of us. And that’s something I had been thinking about for a while. Memento mori (remember that you must die). I’ve been thinking about it due to an interview I read with another person I admire, the artist/game-maker Jason Rohrer, who said that, to him, his game “Passage” (which I recommend whole heartedly) was a sort of Memento Mori. And it was something that I’d want to do, I want to create something that inspires, by reminding me of my mortality. I don’t know how I will do it, there are many art forms I am interested in and even more that I am completely bad at (all of them), but I know that I do want to create things, and I know this is one of them.

Steve Jobs death was deeply saddening to me, I know he has inspired many people already, and I think he will in the future. To me it seems that if you have to die, being able to look back on something good you have done, on having lived your life in a way that you wanted, is a great thing, and Steve Jobs had achieved more than almost anyone else by the time of his death. And besides calmly and in peace, that must be a great way to go.