Monthly Archives: July 2007

More iPhone Cluelessness

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(9/3/2011: Publishing this 4 years after I wrote it)

Man, people sure are dumb.

Back in January, a market research company called iSupply published an estimate of the bill of materials (BOM) cost of the iPhone, based on the publicly available specifications. Their analysis suggested that Apple was selling the iPhone for 50% more than the cost of the parts in side. After the iPhone shipped, iSupply followed up on their analysis by doing a teardown of an actual iPhone and creating an estimate based on the actual components they found inside. Their new estimate was quite close to their original estimate. At about the same time, Business week published a story based on a very similar estimate from another firm.

These numbers have all sorts of people bent out of shape. There are those who resent the fact that Apple seems to be making a fat lot of cash on the product they are lusting for. Then there are those who seem to feel a need to apologize for just how much cash apple seems to be making by explaining that those estimates are first, only estimates, and two, don’t take into account important costs, like engineering, marketing.

John Gruber bitches that iSupply’s estimate doesn’t take into account things like “Build quality, packaging, shipping,” and also that iSupply includes an estimate of the cost of the operating system @ $7 a unit.

Charles Arthur of the Guardian also has a few beefs with the iPhone teardown analysis, complaining that it leaves out both the hard work and some intangible magic that went into creating the iPhone in the first place.

John & Arthur, here is a clue. iSuppli knows more about the manufacturing costs of cell phones and other electronic goods than you and I do. They have a lot of data at their command for estimating the costs of hardware, software, manufacturing, packaging etc, all of which are part of their report. They sweat the fine print too — the original published estimate includes a $0.40 line item. I would guess their estimate of the OS cost is based on the typical license cost for a “smartphone.”

Are these estimates perfect, HELL NO, which is why they are called estimates. John and Arthur are right to make the point that too many people are accepting them as fact, but they are the best chance anyone outside of Apple & its manufacturing partner have at coming up with a basis for comparison with other similar products (Yes yes, the iPhone is in a class by itself, but face it, people are comparing it to the Treo or the Q).

Does apple sell the iPhone version of OSX, again, hell no, but the makers of other phones are paying license fees for the OS they are using.

Is the iPhone experience a step above that of smartphones? Again, hell yes, but that isn’t really the point of a BOM exercise. The R&D to make the iPhone as cool as it is is what is called a fixed cost. The R&D cost of the iPhone doesn’t change based on volume. It’s money Apple had to spend, whether they end up selling 10 iphones, or 10 million.

The BOM costs are a major part of the variable costs of the iPhone. Each iPhone Apple sells increments the variable cost to the company. The BOM isn’t the only variable cost for the iPhone, there are support costs, etc. These costs can be sub

iPhone vs iPod: It’s called up-sell, not cannibalization, idiots.

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I apologize for yet another iPhone related post, but I still have something I need to get off my chest. For months now, various stock analysts have been attracting press coverage and garnering free publicity for their firms by publicly worrying that iPhone sales would “cannibalize” sales of the iPod, that people would buy iPhones instead of upgrading their iPods.

I’m sure that dynamic has played out in a number of cases, but if you take a step back and think about Apple as a whole, it is clear that this isn’t cannibalization, its up-sell. The most expensive iPod goes for $349. The cheapest iPhone is $499, while retaining nice healthy margins.

In other words, if someone forgoes an iPod for an iPhone, Apple is getting even more money! This is not something to worry about.

It might have made sense to worry that iPod sales would slow while people waited for the chance to by an iPhone, but apparently this was not the case. iPod sales grew faster than expected in the last quarter.

iPhone Sales, Perhaps Not So Dissapointing After All

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Yesterday, Apple announced they sold 270,000 iPhones in their last financial quarter. This is no doubt giving conniptions to people who were, only days ago, calling iPhone sales disappointing.

Earlier in the week, some members of the press seemed to be having second thoughts about their profession’s participation in the iPhone hype storm, so some of them lept upon a little fact from an AT&T earnings call that they’d only activated 140K iPhones in their last quarter, the last 30 hours of which overlapped with the iPhone’s debut.

This was terrible terrible terrible, because it was only a few weeks ago that they were hyping reporting the most breathless predictions that 700,000 or even one million iPhones had been sold shortly after launch. So they eagerly compared this information about iPhone service activations with AT&T over a 30 hour period to the most optimistic estimates for iPhone sales (ie, they compared oranges to apples) for the entire weekend. They also ignored or downplayed the fact that a lot of iPhone customers had trouble getting their phones activated that weekend, because AT&Ts systems couldn’t keep up.

Predictably, the same people who bought the earlier hype, happily swallowed this “news,” and Apple’s stock price, which had recently shot up on the positive spin, sank due to the negative spin. This drop then lead to more stories about how disappointing the iPhone was and reassured the press that they still have some influence.

Well, Apple stock is back up again. It’s recaptured everything it lost two days ago after the AT&T earnings call. The latest numbers hold up well against earlier estimates of earlier iPhone sales, many of which were in the range of between 300,000 and 500,000. Even if Sunday’s sales were 1/3rd of what they were for Friday evening and all of Saturday, it’s likely that Apple sold over 350,000 phones in the first weekend, and it looks like sales during the following week were also quite strong as most stores sold out of the phones almost as quickly as they received new shipments. I should note that even these estimates would probably have been considered optimistic back in June.

My Take on Someone Elses Take on One Month With the iPhone

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Dave Weiner writes about his first month with an iPhone. I generally share his criticisms, but he gets off to a rough start by resorting to a common but intellectually dishonest journalistic touch at the beginning

He uncritically restates the overly simplistic headline of a NY Times story, (thereby reinforcing it) and takes it at face value as a segway into the rest of his own piece.

The NY Times reports that iPhone sales are disappointing, I’d like to add that the product itself is disappointing.

This is a problem, because the NY Times story draws shakey conclusions based on suspect and incomplete data. The only data available when that story was written was the # of iPhone activations on AT&Ts service over the first 30 hours after launch. That number is not the same as the number of phones Apple sold in the first weekend, it doesn’t count Sunday, July 1st, and it doesn’t take into account the phones that people didn’t activate immediately, either because of AT&Ts systems problems that first weekend, or because the buyer didn’t have time right away.

The NYT compares the 142K phones activated in the first 30 hours to the most wildly optimistic estimates of iPhone sales for the entire weekend.

As to his critique, I agree that rendering full web pages intended for desktop browsers isn’t the ultimate mobile web experience, but I don’t think Apple thinks that is the whole story. By making the web at large practical for mobile users, Apple brings more mobile users to the web at large. This creates a larger installed base, which creates incentive for publishers to invest more effort in creating optimal experiences for users of small-form-factor devices. Plus, mobile safari gives them a rich platform for developing that experience. Apple has provided a mobile device with backwards compatibility on the web, while also providing the incentive for 3rd party developers to take advantage of the new features provided by the platform.

More Stupid iPhone Press Coverage: “Disappointing Sales”

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Apple stock took a 4% hit today because their carrier partner, AT&T announced they only activated 146,000 iphones in the last two days of June

Here is a fine friendly clue. The iPhone didn’t go on sale until 6pm eastern, 3/4 of the way through the first of those days two days. Furthermore, the optimistic estimates from various stock analysts were for the whole weekend, which included Sunday, July 1st. Finally, AT&T had trouble servicing iPhone activation requests over the weekend, so some significant number of iPhones probably weren’t activated until JULY, which would put it after the quarter AT&T was reporting earnings on.

In its second-quarter earnings report Tuesday morning, AT&T said it activated about 146,000 customers who bought the iPhone during those two days.

This number would not include buyers who purchased the device with the hopes to re-sell it over venues such as Craig’s List and eBay. However, the figure seemed to worry investors who had been primed to expect much larger numbers.

Before Tuesday, analysts had been projecting opening-weekend sales for the iPhone of between 200,000 and 400,000 units.

A few projections reached as high as 500,000 units, with analysts citing long- lines at stores and initial inventory figures for the device.Watch interview with Piper Jaffray analyst predicting initial iPhone sales of 500,000 units.

I guess “reporters” need something else to do now that they’ve beaten to death the whole “the iPhone really costs $2000,” because they cleverly included the cost of a two year service plan. Never mind that most iPhone buyers probably already have cell phone service, which would probably run them $1000 over two years anyway. That leaves us with $500-600 for the iPhone, and $480 for the incremental cost of the data service.

Google Acquires ImageAmerica, maker of high res aerial cameras

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TechCrunch reports that Google has acquired ImageAmerica, which makes high-resolution aerial cameras that have provided Google with images for Google Maps and Google Earth, but neither the author of the post, nor the commentors seem to know what to make of it.

I don’t know the aerial imaging market at all, but I think I can make a good guess. There are atleast two complimentary reasons why Google would buy a company like this.

First, Google want’s to deny competitors access to a key technology or service. If this company is the clear leader in it’s market, then they have just denied Microsoft access to a potentially important resource for their own mapping efforts.

Second, Google want’s to make sure they continue to have access to a key technology based service. If Microsoft bought the company instead, they could have cut off Google’s ability to acquire the highest resolution aerial photography, which would hurt Google’s mapping efforts.

Make no mistake, mapping is very important to Google, because mapping is very important to local services, and locality is a very important piece of context in context specific advertising.