This is a reply to the post my friend Fabrice wrote 2 days ago in his great blog (here) "iPhone, love the product, skeptical about the market), where he explained he was thrilled by the iPhone, would definetly buy it, but he is nonetheless skeptical about Apple's unit sales.
He questions the 10 to 25M units slaes projections given by analysts, mentioning that this is 5 to 10 times that of the Tréo with what is an even more expensive device. The iPhone will sell in the US starting at $499 for the 4Go model up to $599 with 8Go, including a 2 year Cingular subscription.
True, the iPhone is not cheap by any means, but in the same time it packs an incredible number of features, functionalities and technologies in a sleek cute design. If someone is likely to devote a good deal of money in a great consumer electronic device, it is definetly in the phone, as it is carried almost non stop throughout the day and has almost become an extension of one's personality !
Second, Fabrice questions the sustainability of margins in the future. The iPod prices have not really come down a lot over the years, Apple keeping prices up by adding more functionalities (color/photo, then video, etc) and/or upgraded technical specifications (ie larger drive). Phone's prices usually follow a different pattern as they come down sharply overtime, so belief is that Apple will see its iPhone prices, and margins, collapsing.
Well, I disagree ! I truly believe that what happened for the iPod will also exactly happen for the iPhone :
- True, Apple will overtime decrease the price points by c40% (down to $299 and $399). The most expensive iPod today stands at $349 while it used to be $549 some time ago (with less features). Though, Apple still enjoys great margins on that product as component and manufacturing costs also decrease (thank you Hon Hai !).
- Apple will be able to keep premium prices (those above) as it will add more functionalities and still differentiate from competition. Such a device, fundamentally central to one's life with phone, music and internet capabilities, is the one most likely to welcome frequent upgrades both in software and hardware.
- Apple's technological lead vs other phone or smartphone manufacturers is tremendous. I don't see any one catching up in the foreseeable future and I wouldn't like to be in Palm CEO's shoes, boldly claiming that it has taken them many years to know how to design a smartphone, so they don't fear Apple. It seems to be as foolish a comment as the famous Michael Dell's one. Apple's value-added lies in design, software, integration, etc, and it shall remain so for a long time, commanding a premium vs competitors.
As for the stock, which is just an inch to its all time record, I stick to my point, so many times reiterated here : Apple is a the crossroads of many fast growing markets and it is ideally positioned there with a strong brand, a design edge, an efficient and powerful integrated software/hardware approach.
However, let's be clear, Apple has no other model than the one to be a leader in consumer electronics innovation and design. The day it starts to be less creative, for any reason (ie Steve Jobs dissapears), then sales, margins and model would collapse. Consequently, if I'm very confident for the short and medium term, one can only put a discount for the long term so as to include a higher risk factor.
IPHONE = LG
http://www.youtube.com/watch?v=F5916aOMQNI
Posted by: mercutios | January 14, 2007 at 07:31 PM
I agree with your post more than Fabrice's! I'm amazed at how Apple can consistently make everyone else look so old! It's products aren't just good, not just respectable. They're touched by bold genius.
Posted by: Jeremy | January 17, 2007 at 03:24 PM