Linked List: April 19, 2012

Thursday, 19 April 2012

iPhone Again Accounts for Over Half of Verizon’s Smartphone Sales 

As MG Siegler quips:

Android is still winning by some metric, I’m sure.

How America’s Oldest Teenager Outlasted Them All 

Alex Pappademas, remembering Dick Clark at Grantland:

In that Bangs piece, asked how he felt about hipsters who disdained him, he said he understood himself to be “a good institution to play games off of,” but avowed that he’d outlast his detractors in “the underground press … I’ll be here longer than you will, is my attitude.” And he was. He outlived Lester Bangs. He also outlived Don Cornelius, and Solid Gold, and Club MTV, and Total Request Live.

Karl Denninger Claim Chowder 

Karl Denninger, in September 2010:

Seriously considering either an outright short on Apple or a pair trade — short AAPL, long RIMM.

Since then, AAPL is up 113 percent and RIMM is down 71 percent. Can’t win them all, I guess.

Dick Clark Dies at 82 

He was, of course, most famous for American Bandstand and his New Year’s Eve broadcasts, but I loved his $100,000 Pyramid game show. It was the perfect mix of smart, clever, casual fun. Clark was simply perfect on camera.

Apple Stores Have Seventeen Times Better Performance Than the Average Retailer 

One more from Horace Dediu:

The data shows Apple leading by a significant margin. It’s more than twice as efficient as the second place Tiffany and Co. It’s also more than seven times the median of the top 20 and seventeen times better than the average mall retail space.

Extraordinary is the word.

Moltz Nails It 

Perfect postscript to today’s burst of links on the sustainability of Apple’s margins.

Horace Dediu on Apple’s iPhone Profit Margins 

Horace Dediu:

The question should be: How is this possible? What does this product have that gives it such a pricing advantage? Note the the ratio was preserved through the three years shown and has persisted for nearly five years.

And in a separate piece:

However, a casual observer would be stumped by a comparison with competitors which cannot come near the profitability Apple enjoys. How can the same bundle of components (admittedly mostly off-the-shelf) be sold at triple the margins?

It comes down to software. Apple has a monopoly on iOS and OS X and charges for it through its hardware. That’s a very valuable monopoly. It’s worth at least $1 billion per quarter.

A serious mistake Apple bears (such as the aforelinked Karl Denninger) make is to assume that any hardware product has a natural or fair profit margin of no more than around 10 percent. That might be a good rule of thumb for a commodity market, but Apple doesn’t make commodity products. Compare Dell vs. HP Windows PCs, or Samsung vs. HTC Android phones, and one might reasonably argue, “Eh, what’s the difference?”, and thus profit margins are squeezed because they have to compete with each other on price. Apple’s products have unique differences that people are willing to pay for.

The fair price for a product isn’t cost-of-goods plus (say) 10 percent. The fair price for a product is what people are willing to pay for it.

The Argument That Apple Cannot Keep Growing 

On the flip side, Karl Denninger, writing for Seeking Alpha:

Apple formed its business case on single-source iron-fisted control over operating margin by having “the one” that it stirred up an iFanboi brigade to support, using that to drive bargains that were good for Apple but terrible for everyone else.

I bet a lot of you have instituted a de facto “once you pull out fanboy, I tune you out and close the browser tab” rule, and in general such a rule serves you well. But I think Denninger’s argument, though wrong, is representative of the Apple bear position. So, uh, bear with him.

This works right up until someone else analyzes your business model and costs, then figures out how to build something at least as good as what you have but 30% cheaper and gets that into the marketplace. Then the bubble-style valuation model you have built, claiming “it’s not a bubble!” through distortions in the ordinary course of business (e.g. hardware margins three times that of historically-normal levels) is exposed and suddenly your stock doesn’t look so cheap any more.

Profit margins on hardware are very difficult to sustain over 10% for long periods of time. Someone always comes after you and this is not going to be an exception to that rule.

I agree with one thing: sustaining high profit margins is difficult. But where Denninger goes wrong is in assuming that competitors can easily or quickly copy what Apple is doing. His argument is no different than the dire predictions for the iPod a decade ago. Yes, Apple’s hardware margins are extraordinary. But Apple is an extraordinary company. They have an unparalleled retail presence, a top-shelf brand, and a loyal, large, and growing customer base. They write and design their own entire software stack, have incredible third-party developer support, and, by selling very large quantities of a relatively small number of hardware products, attain astounding economies of scale.

I’m not saying Apple’s continued success is assured. But there’s no sense in an argument based on the supposition that Apple is in any way a typical hardware maker.

The Argument That Apple Can Keep Growing 

Yoni Heisler, writing for Network World:

As Apple continues to set new records for revenue and profits seemingly every single quarter, it’s become common for analysts and Apple observers alike to say that Apple’s tremendous growth can’t continue because the company is quickly running into the law of large numbers. Here’s why they’re wrong.

I agree with Heisler. What’s remarkable about Apple’s revenue and profit growth is that it’s happened with product categories — phones and computers — in which Apple still has single-digit market share. It’s more useful to look at the iPad’s share of portable computers than its share of the “tablet” market, and it’s more useful to look at the iPhone’s share of the mobile phone market than the “smartphone” market. All phones will soon be what we now call smartphones; and it may well be that most portable computers will soon be what we now call tablets.

Andy Ihnatko on Switching to the iPad as His Main Mobile Computer 

Andy Ihnatko, writing for Macworld UK:

No, I no longer wish I had an 11-inch Air. What I have here — a third-generation iPad and an Apple Wireless Keyboard — is better. I have better-than-good native iOS apps to handle almost all of my mobile needs. When only a desktop app will do, I have VNC, and/or the wonderful OnLive Desktop service that allows me to run Microsoft Office on a virtualised Windows 7 server.

Shawn Blanc, a few days ago:

My MacBook Air is now my “desktop” and my iPad is now my “laptop”.

Default Email Signature for New Samsung Phone 

This is a joke, right? Right?

‘Forest Service May Blow Up Frozen Cows’ 

It’s early, but I’ll go out on a limb and call this the headline of the day.

(Thanks to DF reader Ricky Irvine.)