The cheap Apple phone problem — Benedict Evans

So, for the sake of argument, suppose Apple sells a phone for $200 pre-subsidy (attacking the bottom and middle of the contract market and the top of prepay), manages a 30% gross margin on it (perfectly plausible) and sells 50m a quarter (ignoring cyclicality). This would double Apple’s share of handset unit sales to 20%, amount to a third of actual Q4 Android sales (c.150m) and equal Samsung’s non-GS3 Android business. 50m would be a Big Number. Assume, also, that it doesn’t cannibalise the existing iPhone line (which of course it would).

That would generate $10bn of revenue a quarter and $3bn gross profit. Apple’s gross profit in the December quarter was $21bn; in the September quarter (i.e. not a launch quarter so arguably a fairer comparison) it was $14bn. 

In other words, a blockbuster new Apple phone that more than doubles unit sales and blows a hole in the middle of the Android market might only add 20% to Apple’s profits. 

The cheap Apple phone problem — Benedict Evans.



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