Most hardware companies have a hard time making money on devices, but not Apple.
Reports in 2018 indicated that 80% of the profits in the global smartphone industry
were earned by Apple. That's not the only way Cupertino's finest makes money.
In this video, we're going to break down how Apple can turn a profit on hardware, and how
it makes more money from users once they have an Apple product in their hands.
There are two popular smartphone operating systems: iOS and Android.
The second is open-source and is effectively the default for all non-Apple devices.
Worldwide, Android owns about 80% of the market, and in the U.S., it commands about 55% of the market.
The operating system is all you'll find on devices from major players like Samsung, HTC, and Huawei.
That ubiquity is great for Google's parent company, Alphabet, but it means that it's
harder for Android phone manufacturers to differentiate themselves.
Because they're all running similar operating systems, the companies need to compete on
features and price. Apple, on the other hand, has always kept its operating system to itself.
If you want to use it and enjoy having your smartphone integrated with your MacBook,
you need to buy an iPhone.
That exclusivity, coupled with Apple's focus on simple, intuitive design and the company's
strong brand, has helped Apple established luxury status in an industry where most other
companies are just trying to keep costs low.
In fiscal 2018, Apple had hardware sales of over $220 billion, and over 70% of that revenue
came from the company's iPhone segment.
All told, the company's hardware business, which includes iPhone, Mac, and iPad,
among other lines, earns over 30% margins, which is virtually unheard of for a consumer hardware company.
But the money doesn't stop there for Apple.
Once someone owns an iDevice, they enter Apple's ecosystem of apps and services.
Want to download a productivity app? Check out the App Store on your iPhone?
Want to expand your storage and put some of your photos on the cloud?
Just pay for an iCloud storage plan.
Individually, these seem like minor transactions, but they add up to big money for Apple.
In the company's 2018 results, they noted that their services segment had generated
$37 billion in revenue with 60% margins.
The Services segment is twice as profitable as Apple's core hardware business, and increasingly
it is going to become the focus for Apple.
Recently, iPhone sales have struggled as Apple battles longer upgrade cycles, but Services
growth has kept chugging along.
In the company's fiscal 2018, Servces revenue grew 24% year over year.
The beauty of it for Apple is that even if one part of the business is struggling,
the company is still cashing in.
Services is strength in Apple's device offering, and the more people that own one of the company's devices,
the larger the market is for its high-margin Services business.
In early 2019, the company announced that it had an installed base of 1.4 billion users,
showing the incredible scale of Apple's hardware business and the massive opportunity
for its Services business. Devices, Services -- no matter how you slice it, Apple is making money.
Thanks for watching!
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