You can argue – and lots of people do – that Apple is therefore “charging too much for the iPhone, and it should cut the price so that more people would buy it”. This is superficially attractive logic to people who (a) aren’t running a business and (b) can’t think long-term.
For Apple, the cash it rakes in is used to reinvest in factory and supply contracts in ventures for forthcoming products. If it didn’t have that surplus cash, it couldn’t buy fingerprint reader companies, lock up supplies of camera sensors, guarantee enough factory production to make 74.5m phones, fund machinery to diamond mill the sides of phones, and pay forward for whatever it’s going to do over the next two, five, ten years.
By contrast, the Android OEMs whose phone divisions are living hand-to-mouth on those incredibly slim margins can’t afford to reinvest. They’re essentially at the mercy of the rest of the smartphone and component ecosystem.
For example, they can implement a fingerprint scanner (HTC and Samsung have) but it’s incomplete; HTC didn’t use it across all its models and it wasn’t part of a payment system – as Apple Pay is, carefully planned over a two-year arc. Similarly, 64-bit Android hasn’t happened to any appreciable extent, and while you can argue about whether 64-bit makes a difference (these ARM engineers reckon it does, and explain why), Apple is still a mile ahead of the rest in implementing it. Lots of Android has to move at the pace of the slowest part of the hardware ecosystem, much of which is 32-bit.
Note that three of the four top-line OEMs are part of large conglomerates which collectively make everything from camera sensors to games consoles to TVs to washing machines to memory chips. That means the smartphone divisions are effectively a bit of icing on the main, hopefully profitable, other parts of the business, and also that they can bear quite sizeable losses for a while (LG and Sony have). For Samsung, mobile enjoyed a spell in the sun; now the chip business has become dominant again. HTC’s survival is anomalous, but somehow heartening.
High-end Android – trying to compete with Apple, especially in the fourth and first quarters (because the latter is a gift-giving time in China particularly) – is becoming a rich man’s game, with low returns. Nor are these ASPs and profits for the fourth quarter unusual; tracking them over time you see similar figures. LG’s average smartphone operating margin for the past 8 quarters is 1.3%; for HTC it’s -1.4%; for Sony it’s a few percent.
In fact, they’re all caught in the “value trap” that I wrote about a while back for the PC market: because they don’t control the software, there’s little chance to differentiate. These companies are vulnerable to customers who choose simply on price. That means only those who can manufacture at scale or compete locally can benefit.
