Deagol goes looking for Apple’s growth limits

  • Posted: 10 May 2012 02:39 AM

    Another resident AFB genius, Daniel aka Deagol, explores Apple’s growth potential.

    Thi is the 3rd part of a three part series. I read the others a while back. They can all be found at Deagol’s blog. They’re all long but worth reading. Not sure who’s smarter - Horace or Daniel - but we are lucky as hell to have access to them.

    http://aaplmodel.blogspot.com/2012/02/mobile-apple-limits-to-growth-part-3.html?m=1

         
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    Posted: 10 May 2012 11:54 AM #1

    adamthompson32 - 10 May 2012 05:39 AM

    Another resident AFB genius, Daniel aka Deagol, explores Apple’s growth potential.

    Thi is the 3rd part of a three part series. I read the others a while back. They can all be found at Deagol’s blog. They’re all long but worth reading. Not sure who’s smarter - Horace or Daniel - but we are lucky as hell to have access to them.

    http://aaplmodel.blogspot.com/2012/02/mobile-apple-limits-to-growth-part-3.html?m=1

    This is an incredibly insightful paper.

    Deep down inside which I can’t find now, basically says that if Apple does nothing to improve their products except release new ones with minor changes and people have no choice but to replace them because they are too old, Apple is guranteed 20% growth for 10 years.

    In other words there are die hard fans that will never switch and keep buying Apple products.  That base is so big that it keeps the company growing without new customers.

    Of course they will come out with amazing new changes to their products and for the last 6 years 50% of Apple Store cutomers buying Macs are new to the company.  That number will actually grow over the years as they open up more stores and the Halo affect to other products continues.

         
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    Posted: 10 May 2012 02:08 PM #2

    Daniel is undoubtedly smarter.

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  • Posted: 10 May 2012 10:04 PM #3

    asymco - 10 May 2012 05:08 PM

    Daniel is undoubtedly smarter.

    No way for me to know.  But both of you are hard working and thoughtful.  Perhaps as much scientists as analysts.

         
  • Posted: 11 May 2012 01:29 AM #4

    asymco - 10 May 2012 05:08 PM

    Daniel is undoubtedly smarter.

    This I do not know…,but…,does he look good on the small screen or have your iPad presentation skills?  :-D

    Nice job on the presentation btw.  I really like the enthusiasm you bring to what (for me) is some pretty dry material.

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    Posted: 11 May 2012 01:42 AM #5

    I’m smarter only ‘cause I’ve “wisely” eschewed the showbiz model. What a nightmare for poor Horace.  wink

    [ Edited: 11 May 2012 01:46 AM by deagol ]      
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    Posted: 11 May 2012 01:49 AM #6

    deagol - 11 May 2012 04:42 AM

    I’m smarter only ‘cause I’ve “wisely” eschewed the showbiz model. What a nightmare for poor Horace.  wink

    I don’t know about that.  He seemed very comfortable on stage in that video presentation and sounds very professor like on the critical path audio blogs.smile

         
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    Posted: 11 May 2012 02:02 AM #7

    omacvi - 11 May 2012 04:49 AM
    deagol - 11 May 2012 04:42 AM

    I’m smarter only ‘cause I’ve “wisely” eschewed the showbiz model. What a nightmare for poor Horace.  wink

    I don’t know about that.  He seemed very comfortable on stage in that video presentation and sounds very professor like on the critical path audio blogs.smile

    Thus the quotes on wisely: it’s only from my perspective. Obviously Horace is amazing.

         
  • Posted: 11 May 2012 02:45 AM #8

    deagol - 11 May 2012 05:02 AM
    omacvi - 11 May 2012 04:49 AM
    deagol - 11 May 2012 04:42 AM

    I’m smarter only ‘cause I’ve “wisely” eschewed the showbiz model. What a nightmare for poor Horace.  wink

    I don’t know about that.  He seemed very comfortable on stage in that video presentation and sounds very professor like on the critical path audio blogs.smile

    Thus the quotes on wisely: it’s only from my perspective. Obviously Horace is amazing.

    When will you post your post-Q2 analysis and preliminary Q3 outlook?

         
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    Posted: 20 May 2012 03:20 PM #9

    Horace posts some interesting thoughts about Apple’s growth limits:
    http://www.asymco.com/2012/05/19/an-interview-with-chris-brennan-for-macuser-magazine-uk/

    Chris Brennan asked a few important questions regarding potential saturation of the iPhone market.

    Is the iPhone anywhere near saturation? Can Apple continue to shift iPhones in ever increasing numbers or is a sales plateau realistically on the horizon?

    The market for mobile phones is approximately 5.5 billion connections, perhaps 5 billion users. The iPhone has approximately 300 million installed base. I consider a base of 1 billion users to be a minimum for continuing participation in this market long term. Licensed platforms will reach this in no more than two years. I don?t know what Apple?s ambitions are but if they don?t triple their base I don?t see a strong future for the company in mobile phones. In order to triple the base the company will need to sell substantially more than an additional 700 million iPhones. The retirement rate can be as high as 50% of installed base. Apple will need to sell at least 1 billion iPhones in the next few years. Seen another way, Apple has a market share of about 9% on a quarterly basis. This needs a lot of improvement. Chinese vendors are not standing still.

    Sales of a billion iPhones in the next 2-4 years? I want to believe this is possible (and part of me does believe), but part of me still doubts. Oh me of little faith.

    Finally, this exponential growth of Apple products has to end some time soon doesn?t it? How many high-income buyers for expensive products can there be left for Apple to target?

    Trying to calculate the limits to growth is futile. There are limits but they are not calculable and inaccurate estimates don?t offer any useful information… Your question was framed by an implied market categorization: that buyers are either high-income or, presumably, low-income. This is a false dichotomy. Buyers are either needful of a job to be done or not. If the job is important enough, money will be found to hire a product. Sellers of products will also find ways to meet the demand through lower prices and increased capacity. Every product Apple makes used to be out of the reach of all consumers. Whether computers (portable or not), music players and professional grade software, voice recognizing personal assistant cellular phones and tablets are all luxuries or necessities is only a question of timing.

    China is an especially good example of this “money will be found” concept. That bodes well for the billion iPhone goal.

         
  • Posted: 20 May 2012 04:11 PM #10

    I love the “money will be found” idea. It’s exactly what I’ve been saying about why we hopefully won’t see an iPhone nano. If the iPhone is indeed a high level need (not want) for people (and I believe it is becoming more and more so for more and more people every day) then there is no need to ever launch a less expensive iPhone. The iPhone is still inexpensive considering the value it provides (GPS, phone, text, gaming, mobile internet, zillions of other apps) so I think the single model approach is perfect. Money will indeed be found to pay for an iPhone just like it’s found to pay rent and buy food.

         
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    Posted: 20 May 2012 09:51 PM #11

    adamthompson32 - 20 May 2012 07:11 PM

    I love the “money will be found” idea. It’s exactly what I’ve been saying about why we hopefully won’t see an iPhone nano… The iPhone is still inexpensive considering the value it provides (GPS, phone, text, gaming, mobile internet, zillions of other apps)...

    I think the 3GS is as close as we’ll get to an iPhone nano for now. It’s a bit mind boggling to think that the iPhone 4 will soon become the $375 unsubsidized low-end model. Talk about an incredible value! With the Retina display and iOS 6, the mid-range Android phones are going to get pummeled.

         
  • Posted: 20 May 2012 10:08 PM #12

    Drew Bear - 20 May 2012 06:20 PM

    Horace posts some interesting thoughts about Apple’s growth limits:
    http://www.asymco.com/2012/05/19/an-interview-with-chris-brennan-for-macuser-magazine-uk/

    Chris Brennan asked a few important questions regarding potential saturation of the iPhone market.

    Is the iPhone anywhere near saturation? Can Apple continue to shift iPhones in ever increasing numbers or is a sales plateau realistically on the horizon?

    The market for mobile phones is approximately 5.5 billion connections, perhaps 5 billion users. The iPhone has approximately 300 million installed base. I consider a base of 1 billion users to be a minimum for continuing participation in this market long term. Licensed platforms will reach this in no more than two years. I don?t know what Apple?s ambitions are but if they don?t triple their base I don?t see a strong future for the company in mobile phones. In order to triple the base the company will need to sell substantially more than an additional 700 million iPhones. The retirement rate can be as high as 50% of installed base. Apple will need to sell at least 1 billion iPhones in the next few years. Seen another way, Apple has a market share of about 9% on a quarterly basis. This needs a lot of improvement. Chinese vendors are not standing still.

    The above argument presupposes that the Chinese vendors will produce something that a/ the public wants more than the ever evolving iPhone, and b/ they do it without violating any one of Apple’s patents.  Price is not the issue, there will always be a price driven market segment (no matter how low the price), and there will always be a market tier driven by quality of product and experience.

    The iPhone has succeeded, as it has, because it leap frogged the competition by several generations.  The iPhone was able to do that because handset design/advancement wasn’t controlled by the manufacturers, it was determined by the carriers.  Apple broke through those chains.  I think the onus isn’t on Apple, it is on the competition.  To overcome iPhone, they have to leap frog it’s capabilities, and do it in a way that will change top of mind preferences.  In the FIVE+ years since Apple announced the iPhone the competition has done nothing more than copy iPhone technology. That isn’t how to leap frog anybody/anything.

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    Posted: 20 May 2012 10:29 PM #13

    Drew Bear - 21 May 2012 12:51 AM
    adamthompson32 - 20 May 2012 07:11 PM

    I love the “money will be found” idea. It’s exactly what I’ve been saying about why we hopefully won’t see an iPhone nano… The iPhone is still inexpensive considering the value it provides (GPS, phone, text, gaming, mobile internet, zillions of other apps)...

    I think the 3GS is as close as we’ll get to an iPhone nano for now. It’s a bit mind boggling to think that the iPhone 4 will soon become the $375 unsubsidized low-end model. Talk about an incredible value! With the Retina display and iOS 6, the mid-range Android phones are going to get pummeled.

    This is true in US, where smartphones with an unsubsidised cost up to $400 all seem to sell for $0 on a 2 year contract. However in the much larger “rest-of-world” market, the cheapest iPhone (currently the 3GS) still sells for about twice as much as mid-range Android devices, and about 3-4 times the price of low end android models.

    In international markets the standard US $400 subsidy is not present, so consumers end up paying more of the true cost.

    I think there is a chance the 3GS may continue to sell in the international market at a new $250-$300 USD price after the iPhone 5 intros this year, even if its only a 4GB model.

    [ Edited: 20 May 2012 10:34 PM by Burgess ]

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  • Posted: 21 May 2012 12:08 AM #14

    Any guesses as to the build cost of a iPhone 3GS at this point?
    What margin Apple makes selling it for $400 US?

         
  • Posted: 21 May 2012 12:46 AM #15

    Burgess - 21 May 2012 01:29 AM

    [

    In international markets the standard US $400 subsidy is not present, so consumers end up paying more of the true cost.
    .

    This isn’t as true as it once was. China’s middle class is now nearly as large as it is in the US, and Apple has been working with authorized carriers to go subsidized post paid and having good success doing so.

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