Tuesday, July 16, 2013

The Crazy Smartphone Profit Margin

Some of you might have known that I’m a strong advocate of using phone enabled tablets as primary phones. 

I’ve stopped carrying a phone since almost 18 months ago, and yes there are concessions I had to make to accommodate using a tablet as my only phone. Among them, are Bluetooth headsets and murses (man purse). Quite frankly, I can’t leave the house without those two items nowadays.

However in my opinion, the benefits I get from using a tablet as my cell phone far outweigh the hassle of having to carry a murse and the sartorial conundrum it brings.

In the following installments I will attempt to dissect my rationale behind this decision, one by one. First let’s start with something that I’m sure anyone can relate with, price.

See, where I live, phones are sold off contract at their real prices. No one is there for us to absorb the initial cost of our phone purchases. 
In such a market, it is not a strange sight to see high profile phones being launched with price tags well north of US$800.  Of course, as time goes by most of their price tags get reduced, but not by much. Most of them end up at around US$650-750 after 6 months.

As I’m sure you can imagine, if you are a tech enthusiast living with modest budget in such an environment, you’d want to get the most out of your money. I certainly would.

So I did a rudimentary research on how much the devices that I’m interested in cost to built and what is their market price.

Below you can see the result of my little research. Bills of materials  are sourced from iSupply, with some parts extrapolated from the bill of materials of other devices using the same equipment. Market price is based on current price tag of one of the nation’s largest online retailer, bhineka.com.

As you can see, in terms of profit margins, Samsung demands very high profits from their phones. So high, in fact, it can be considered exorbitant if you think that the margin they make from their flagship phones are more than the price tag Google put on the PlayStore (in the US) for the LG Nexus 4! Of course, Samsung is not the only one doing this, Apple is the worst offender if you use Indonesian market price, but that's for another discussion. For now, let's just compare Apples to Apples shall we?

From our estimations, the Galaxy Note 2 that has almost the exact same internals as the Galaxy Note 8.0, (bar the screen, camera and battery) costs at least $10 less than the Galaxy Note 8.0 to manufacture. Yet its retail price is $100 more expensive than the tablet and that is after last month’s $100 rebate. When the Galaxy Note 8.0 was launched, the Galaxy Note 2 was still being sold at $750.

The Galaxy S3 is even more ridiculous, as it is also $100 more expensive than the tablet even though it cost at least $50 less to produce, plus the Galaxy S3 has half the RAM of the Galaxy Note 2 and 8.

So to get the best bang for my buck, in my opinion, the phone capable tablet is the only way to go.

I’ll take man purses and Bluetooth dongles any day over getting ripped off, thank you.

In the next installments I will discuss about other reasons behind my decision to stop carrying smartphones around with me. 

So stay tuned!