During the quarter the company sold 37.4 million iPhones, 7% more than the 35.1 million sold in the prior year period, and sold 19.5 million iPads including iPad Minis, a huge hike of 65% over the 11.8 million units sold in prior year second quarter. Automatically, this mix of products pulled down the bottom-line. But all this has a lot more to say than just a story about a fall in margins. And what is that? Let’s take a look.
Product development to cater to new markets
Apple Inc. (NASDAQ:AAPL) can choose to sell less of high-margin products or more of low-margin products or somehow strike a balance between these two, and the final decision should depend upon the expectation of total revenue and net profit from each of the alternatives. Now; demand is the factor that will primarily impact the functioning of the entire company, and the other factor which needs to be considered is place. While Apple’s high-price-high-margin business model worked out wonderfully for the company in the past, it might not continue to do so going forward.
Apple Inc. (NASDAQ:AAPL) has already captured a huge portion of the existing market and in order to grow, it needs to venture out to new markets. These new markets are very likely going to be outside the US and the UK and the common characteristic of these markets are that they are highly price-sensitive. In such a market, how can Apple’s old business model work?
This is exactly where peers such as Google Inc (NASDAQ:GOOG), Samsung and Nokia Corporation (ADR) (NYSE:NOK) are taking the lead. The growing trend is that people are favoring devices which are affordable to buy and easy to maintain. Surely there are people who love and admire Apple products and wish to own them. But the affordability factor pushes many of them to move to other phone makers.
For example, Apple Inc. (NASDAQ:AAPL) is having a great time in China, and claims that it has an 80% tablet market share in the country. So, what made this possible? The low-priced iPad Mini. China has many other 7-inch tablet makers who can provide the device at a lower price. Still, the Chinese users preferred to buy from Apple. This clearly points out that there is huge demand for Apple products and people wish to associate themselves with the brand. That’s why they gladly paid more when they could have easily paid less for other tablets. After all, at the end of the day, they were able to own an iPad but at a cost much lesser than that for a 10-inch iPad. Similarly, all around the world there are similar buyers and Apple needs to make the most out of them.
After the US, China is the next focus point for Smartphone makers, and presently the country is the biggest market out there. So if Apple Inc. (NASDAQ:AAPL) wants to enjoy a similar experience when it comes to iPhone in China, it definitely needs to work on a lower priced model.
