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Will mobile kill Apple computers?

Posted: , by Michael H.

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Will mobile kill Apple computers?
Yesterday, we saw Apple's earnings for their amazing third quarter and rightly so, everyone was amazed. But, in breaking down the numbers, we can see the continuing trend that the computer company is less and less and Apple is more and more a mobile company. The Q3 numbers now show that 68% of Apple's revenue comes from iPhone and iPad sales, so let's look into those numbers a little more. 

Leading the charge

Will mobile kill Apple computers?
It's no surprise that mobile has been exploding for the last few years, and Apple has been leading the charge since the introduction of the iPhone back in 2007. Now, you can argue all you want about whether iOS is the best mobile platform, or whether or not Apple "stole" ideas from those that came before them, but, those arguments are basically pointless. Which mobile OS is the best is purely subjective and dependent on your needs and preferences. If your friends and family are spread around the world and all have BlackBerries, you'll probably get that for BBM. If you are deep into iTunes, or you want a simple, clean interface, you go with an iPhone. If you want absurd amounts of customization options, you go with Android. No one choice is better than another for everyone. 

And, success is never based on who comes up with an idea first or even who brings it to market first; success is reaching a mass market first. Sure, there were smartphones and touchscreens before the iPhone came alone, but there is no argument that Apple was the first to make that form factor into a commercial juggernaut. Apple was the first to prove that a full touchscreen phone and slate could be commercial successes and not just niche devices. 

Going Mobile

Now, mobile is the bulk of Apple's business. Traditional "desktops" and "portables" (laptops) made up just 17.9% of Apple's Q3 revenue based on the numbers released. iPods constitute 4.6% of revenues and iTunes sales are 5.5%. That leaves 46.6% of revenue from iPhone sales, and 21.2% from iPad, for a combined 67.8% of total revenue coming from Apple's mobile hardware. Of course these numbers include peripherals and accessories for iPhones and iPads, but that still marks year-on-year growth of 183% and 142% for the iPhone and iPad respectively. And, last year Q3, iPhones and iPads made up just 48% of Apple's revenue, further showing the leap mobile has made in the last year. Of course, the launches of the iPad 2 and Verizon iPhone no doubt are a big part of these numbers. 

Will mobile kill Apple computers?
Apple has a long history of taking ideas that already existed, making them better and making them commercially successful, then being overshadowed by its competition. Many will point to this as Apple "losing" to Microsoft in the PC days, or to Android today, but that idea doesn't take into account Apple's end goal. Apple has never been in the business of having the biggest market share, if they had there would have been $500 MacBooks years ago. Apple's end goal has always been high quality devices with high profit margins and revenue, and mobile gives Apple just that. 

Big money, no whammies

Apple computers have always had the same downfall: they were the best built, but the price for entry was too high. Add that to the "leap of faith" needed to go Apple, and the company had what seemed to be a permanent place as the underdog. Being the first to market a successful smartphone, Apple looked like they would be the winner of the mobile race, but their business model never changed, and so the results were inevitable. Android phone came in all shapes, sizes, prices, and on all carriers, and so took over the market. Luckily, as noted earlier, market share was never the end game for Apple. Much of Apple's allure these days is in their placement as the cool option. Everyone has a PC, but Macs are cooler. iPhone achieved that through controlled demand. iPhones were cool because they were only on AT&T, then by the time the iPhone started to spread to other US carriers, Android had already taken the market share, so iPhone is cool because it's the underdog again. Through it all, Apple played its own game, constantly posting huge earnings that often rivaled or beat out the earnings of competitors who were striving for ubiquity rather than revenue. Mobile hits the sweet spot for Apple in this regard. 

Will mobile kill Apple computers?
The price point may have been a barrier for Apple computers, but it has been a boon for mobile options. At $500, the cheapest iPad hits the magic spot for consumers. And, for Apple the cost of production makes it all the more worthwhile as teardowns of iPads estimate production costs at anywhere from $230 for the original iPad, to around $330 for the iPad 2, leaving anywhere from $170-270 of profit on each iPad. Given that Apple has sold approximately 25 million iPads to date, that revenue adds up quickly. 

Not as quickly as the iPhone though. The iPhone is the perfect storm of cash for Apple. Reports peg the iPhone 4 production costs at around $190, and sells for $200. Not much there until you account for carrier subsidies. Apple may only pay $190 to produce an iPhone, but it then sells that iPhone to carriers for somewhere close to $600, the difference between that an the contract price is then made up through carrier subsidies. And, Apple notoriously gets higher carrier subsidies than any other phone maker. Early on, Apple was reportedly getting as much as $450 per iPhone in carrier subsidies, meaning AT&T bought the iPhone from Apple for $650, but sold it to the public for just $200. 

It's these subsidies that have brought Apple more and more away from traditional computers to mobile devices. Apple can now make high end devices and not have to worry about whether or not consumers will pay $650 for a mobile phone (at least in America), because carrier subsidies bring iPhones down to the magic number of $200 for consumers. Of course, these carrier subsidies aren't as much of a factor in Europe, but consumers there are more used to paying full price for mobile phones anyway, so paying a little extra for an iPhone over the competition isn't that big a deal. For example, a 16GB iPhone on Apple's UK site lists for £510, which converts to $823, and €659 on the Italian site, which converts to $934, and that iPhone still costs just $190 to produce. 

Holding the gameplan

The question is: will there come a time when Apple deems traditional computers unnecessary to their business model? Apple has been slowly bringing in more and more iOS-like features to OSX, and there are have been rumors that the two operating systems may converge at some point. If they do, that would almost certainly alienate many of the power-users on OSX, but alternatively, it could bring in far more casual customers who want a unified experience from mobile to desktop. It also would ease the conversion from Windows to Mac, as customers will have learned to use the OS through the iPhone and iPad. 

It seems unlikely that Apple would completely remove traditional computers from its product lineup, and it seems just as unlikely that iOS will completely supplant OSX. But, Apple's mobile ventures are proving to be the driving force behind the company these days, and could be the path leading forward. iPads and especially iPhones have allowed Apple to continue its focused goal of high quality devices, that are easy to use, and have high profit margins, but Apple knows better than to completely forgo its fanbase which drives much of the hype around each new launch. But, don't be surprised if OSX continue to be afterthoughts to the powerhouse of iOS. 

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1. rican posted on 20 Jul 2011, 15:25 1

Leading the Charge paragraph should shut all fanboys up for a while, well said PA.

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5. stealthd posted on 20 Jul 2011, 19:07

I wish that were true.

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15. MichaelHeller posted on 21 Jul 2011, 17:14

Looks like that paragraph did such a good job of keeping out the fanboys, there's no one left to discuss the article itself...

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2. readingthissh1t (unregistered) posted on 20 Jul 2011, 17:05 2

my only problem is that if apple is leading the charge why are they taking competitors to court? Apple steals ideas and call them revolutionary but when an idea is stolen from apple, someone is getting a lawsuit. Everyone wanted a touchscreen phone before the iPhone, the problem was that there were a lot and the os's sucks bawls. Apple may be leading the charge but unless they start spending less time in court and more time innovating, someone else will take the lead. iOS5 and iPhone 5 vs Nexus Prime and Ice Cream Sandwich vs wp7.5 mango and HTC Eternity

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3. MichaelHeller posted on 20 Jul 2011, 17:41 2

I mean "leading the charge" in that Apple has made the current iterations of smartphones and tablets commercially viable, not so much that they are leading on a feature by feature basis.

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4. Illyich posted on 20 Jul 2011, 18:21

Interesting.

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7. medalaster1 (unregistered) posted on 20 Jul 2011, 22:14

Well Apple it is!

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8. biophone posted on 20 Jul 2011, 23:06 1

Please don't let apple remove itself from the pc market no one makes a computer as well built as they do. Anyway a tablet isn't enough for me i need a computer. IOS is cool for the iPhone and i really like it but I don't like lion and if anything I want to see the iPhone become more like a mac rather then a mac for like an iPad.

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9. biophone posted on 20 Jul 2011, 23:10

I love how phone arena tried to calm down the fanboy wars with no os is better then another. This just isn't true iOS is better then windows android and rim. Its more secure easier to use doesn't have annoying widgets its perfect. You can't beat perfection :).

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10. CRICKETownz posted on 20 Jul 2011, 23:53 1

Well the part you skimmed over is that PA made it clear that the "best" is subjective. To make a statement like yours is only limited to personal preference. Maybe you think not having Android-like functions is the greatest thing but another can think iOS is annoying. With so many OS's that are so similar with their own strengths to be top dog is almost impossible.

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12. biophone posted on 21 Jul 2011, 00:39

Im trying to start fanboy wars and you all os good post isnt helping.

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11. ilia1986 posted on 21 Jul 2011, 00:02 2

The problem is not Apple. The problem are iSheep who buy all Apple products regardless of price and quality, and are absolutely sure that their products are the best in the world. This causes Apple not to invest heavily in innovation and improvement of existing and future products - and in turn - worsens the potential quality of products to users who did buy an Apple product - but expected that it would be significantly improved later on via a software update.

You love apple products? That's fine. There are many reasons to. But there are also many reasons not to. So please do NOT be ignorant by saying that these are the best products in the world. There is no such thing. All it does is causes Apple to believe that because you - and a lot of other people - will buy their products no matter what - there is no need to invest in them on a regular basis software and feature-wise.

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16. stealthd posted on 21 Jul 2011, 23:53

Apple doesn't need phone arena to tell them anything, their sales speak for them selves. Argue about "iSheep" all you want, it's a dead horse, it's based on pure assumption on your part and doesn't lend any credibility to what you're trying to say.

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21. CRICKETownz posted on 24 Jul 2011, 12:15

Well unfortunately there are not many people that hate Apple products except for the pro-Android anti-Apple coalition which even those may not hate the actual product, they just hate the Apple-way which i guess is so controlling. I don't feel controlled at all & i carry a Android as well and don't see much difference. Its not significant at all yet Androdians make it seem like Android platform is SO much diff. and also superior to iOS. So, let me get this straight...you all hate Apple for their superiority complex but you turn around and pull the same stunt? Nice. What that means is people are crazy. No one on here is getting paid by Apple nor Google so the extreme hatred for either side is pointless.

In other news, Droid3 software in particular is ridiculous. One of the best versions of Blur (if it is that) i've seen. I'd actually prefer this to Sense. Kind of reminds me of Honeycomb.

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13. networkdood posted on 21 Jul 2011, 01:08

Wonder if CHROMEbooks will ever take off in the marketplace?

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14. Vittorio posted on 21 Jul 2011, 03:59 1

Ok, the article doesn't get it completely right. While there are shops here in Europe (I live in Spain) where you can get every phone for its full price, doing so it is really unusual.

Carriers do subsidize phones here, even more than in USA. In fact, the "golden spot" for the prices around here is 0€. Zero, that's right. People usually expect that ther carrier give them their next phone for free. If not, you port your line to another carrier (porting offers are really strong around here) and finally get it for free. For the last models you have to pay someting, but for example, I paid 49€ for a Sensation last week. But I could get the iphone 4 for free, as well as the Optimus 3D, or Galaxy S2 for 49€.

Fares are really more expensive than what you have there, though.

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17. crazybeast6 (unregistered) posted on 22 Jul 2011, 09:16

the term 'fanboy' is thrown around way too much in the comments of an apple-related article. i prefer apple computers over windows and i prefer iOS over android but i'm not a fanboy, i just realize who makes the best product which suits my needs. the article summed this point up perfectly in the first paragraph. just because someone prefers OS X to windows doesn't make them a fanboy and just because someone may prefer android to iOS doesn't make them a fandroid. i wish people could just get past that and just pick what ever platform best suits their needs and stop judging others because their needs are different.

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20. Vilim (unregistered) posted on 24 Jul 2011, 02:02

Actually, when most people say "Apple suits my needs", they in fact refer not to needs, but to desires. Because Apple never suited to one's need. That's the whole point of their success - making products as objects of desires - eye candy, noble materials, high-brow design and illusion of exclusivity.

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18. aksolanki posted on 22 Jul 2011, 17:55

Great article. I wish the conclusion were otherwise, but after being a Mac user for 20 years, and having spent the past two months using OS X Lion. OS X will soon become iOSX. It makes me sad but, in the not too distant future I may be looking for a new desktop OS. The final nail is going to be the loss of the Finder.

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19. Vilim (unregistered) posted on 24 Jul 2011, 01:46

For the first time in 20 years, operating systems and the concept of "personal computer" are changing thanks to Apple's enormous manipulating power. They are using the fact that most users want Internet services and games, but don't want PC (because they have to be IT-literate) - the tablets and smartpones based on idiot-proof intuitive touch-screen operating systems marketed by Apple makes that criteria obsolete - now everyone can use apps and Internet without any knowledge on computers and software. So PC's are becoming obsolete too. They are only needed by power users and professionals. Even Microsoft has begun rewriting its Windows 8 to look like universal tablet/smartphone OS, rather than Windows 7 and all its predecessors in last 20 years. It is very probable that in year or two the separation in markets will occur - one for power users and profesionals (servers, workstations, office computers, based on Unix/Linux or some pro versions of Windows), and one for home users, which will be based on tablets and smartphones that provide Internet services and apps. We also must not forget Google's plan to completely eliminate operating systems on devices and transfer all functions on web and cloud services - which will now in this new tabletsmartphone circumstances probably be integrated with Android platform.

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