Here’s why Apple’s huge profits are actually a curse

Mo’ money, mo’ problems.
Mo’ money, mo’ problems.
Image: AP/J. Scott Applewhite
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Apple is still making tons of money on its phones, but not for long, says mobile analyst Sameer Singh. Why? Samsung and other makers of Android smartphones are getting better at creating “good enough” devices, which is making consumers more price sensitive.

Price sensitivity partly explains why relatively inexpensive Android phones are dominating in terms of market share. (75% of all smartphone sold globally are Android devices.)

Apple lovers like to tout the fact that, because of its steep profit margins, the company still takes the lion’s share of profits on smartphone sales globally. But as the smartphone market matures, price sensitivity may change that, leaving Apple with two options: remain inflexible on pricing and continue to lose market share, or lower the price of iPhones and lose profit share. Either scenario augurs shrinking profits for Apple.

Apple’s share of profits made from the sale of smartphones is slipping.
Apple’s share of profits made from the sale of smartphones is slipping.
Image: Sameer Singh

In this light, the rumors of a cheaper iPhone make sense. So do rumors that Apple is pouring its innovation energies into an iWatch. If it’s truly unique, customers might still be willing to paying a big premium. That is, until competitors copy it.