Apple Inc. v. Samsung Electronics Co. Ltd. et al

Filing 1557

Declaration of Xinying Valerian in Support of 1556 Opposition/Response to Motion,,,,,,,, filed byReuters America LLC. (Attachments: # 1 Exhibit A to Declaration of Xinying Valerian, # 2 Exhibit B to Declaration of Xinying Valerian, # 3 Exhibit C to Declaration of Xinying Valerian, # 4 Exhibit D to Declaration of Xinying Valerian, # 5 Exhibit E to Declaration of Xinying Valerian, # 6 Exhibit F to Declaration of Xinying Valerian, # 7 Exhibit G to Declaration of Xinying Valerian)(Related document(s) 1556 ) (Olson, Karl) (Filed on 8/2/2012)

EXHIBIT B

Tim Worstall, Contributor
I write about business and technology.

T E C H | 7/29/2012 @ 8:32AM | 3,799 views

Why Are Apple's iPad Margins
Half The iPhone Ones?
I thought this was an interesting little factoid from Reuters. The margins on
Apple‘s US sales of iPads seem to be about half the same company’s margins
on sales of iPhones. That different products have different margins is not
unusual but that is a large difference and I think I’ve got an idea of why this is
so in this case:

“

Apple Inc earned gross margins of 49 to 58 percent on its U.S. iPhone sales between April
2010 and the end of March 2012, while gross margins on the iPad were much lower during
much of that period, according to a court filing.
The information was revealed on Thursday in a freshly unsealed statement from an Apple
expert witness, filed in the company’s patent battle against Samsung Electronics Co Ltd.
An Apple representative declined to comment on the court filing.
Between October 2010 and the end of March 2012, Apple had gross margins of 23 to 32
percent on its U.S. iPad sales, which generated revenue of more than $13 billion for Apple,
the filing said.

We know, absolutely, that everyone always speaks the truth and nothing but
the truth in evidence in court proceedings so we’ll take those margins as
gospel shall we?
Which leads us to the interesting question: why? My supposition is that it’s
the way that the two products are sold.
I would emphasise that this is a supposition: also, that even I don’t think it
counts for all of the margin difference, just that I think it’s likely to be a large
contributor.
The iPhone, by and large, is sold with an airtime subscription. The airtime
companies have always paid subsidies on such handsets. They pay the
manufacturer a higher price for the kit than they charge the consumer upfront
for it aiming to recoup that initial loss through airtime charges over the life of
the contract. This is true of almost all markets and almost all handsets by the
way.
The iPad is sold as is. Sure, you can get an airtime contract to go with it but
that equipment subsidy is a lot rarer.

Which means that when buying an iPad the consumer sees, upfront, the full
cost of the equipment. With an iPhone they don’t, some of that being buried
in the monthly airtime charge they’re paying on their contract. And it’s hardly
a surprise that you can make a larger margin on something where people
don’t see the real price in quite the same manner now, is it?
It could be that the iPhone is just an even more desirable product that the
iPad, it could be there’s less competition in phones than tablets. But I’d still
go with my explanation: consumers see the full cost of the iPad upfront, they
often or usually don’t on the iPhone. Thus margins are higher because of the
obfuscation of the total price.

This article is available online at:
http://www.forbes.com/sites/timworstall/2012/07/29/why-are-apples-ipad-margins-half-the
-iphone-ones/