Consumer Electronics 101

Today there was another post about how Apple (and others) are making so much money from their hardware products.

50-percent of your iPhone purchase to pad Apple’s wallet? – Engadget

Well, this is just the way the consumer electronics economy works. So for example, any piece of gear made in China will typically be sold at retail (ASP) for 4x the amount the OEM paid for it. Note that the value chain includes the retailer and marketing has to be taken into account as well. Apple economics are a little different in that they have their own retail outlets and sell online.

The mobile phone space is a bit different as well. In the case of the iPhone, I bet Cingular is subsidizing the phone (which is typical) so Apple is probably making more money than Engadget is listing.

Regardless, very few gadget companies are making a ton of money (easy to figure out if you track their stocks) yet they play in a world where the 4x rule of thumb applies. What does this mean? Well, it means that they are not necessarily gouging consumers. Somewhere in the value chain, value is being attributed and to get value you have to pay.


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