Margin vs. Market Share: Apple Inc. (AAPL)’s Turnover Advantage

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Apple Inc. (NASDAQ:AAPL) is facing a dilemma right now. Does the company sacrifice its excellent profit margin for a greater market share? It’s a question analysts have been debating for weeks.

Margin vs. Market Share: Apple Inc. (AAPL)’s Turnover Advantage

The Wall Street Journal reported that Apple Inc. (NASDAQ:AAPL) is working on a less expensive iPhone that could be sold to smartphone users in developing countries. That could increase the company’s market share, but at what cost to its profit margins?

After all, Strategy Analytics showed that average income for a mobile carrier per user in the U.S. was about $46 per month, compared to just $10 per month per user in China. With such little revenue from each user in China, carriers are simply not willing to subsidize expensive iPhones for their users. Thus, Apple Inc. (NASDAQ:AAPL) must make an iPhone that’s cheap enough for someone in China to buy without the help of a subsidy from the carrier. This will likely shrink the company’s profit margins.

Rolfe Winkler argues in The Wall Street Journal that the big winner in the margin vs. market share battle is market share. He said that over the long term, bringing new users to the iOS platform is beneficial for Apple. All the company needs to do is attract the user with a cheaper iPhone, and then there’s a chance that the user could grow into a more expensive iPhone later on. That person could even end up buying an iPad or a Mac computer simply because he likes his iPhone.

We will get some important clues on what an inexpensive iPhone will do to Apple Inc. (NASDAQ:AAPL)’s profit margins in a few weeks when the company releases its earnings results for its December quarter. This will be the first report that will tell us about iPad Mini sales. As Winkler points out, the iPad Mini is essentially an inexpensive iPad. This makes the iPad Mini the very first test in Apple’s dilemma about profit margin vs. market share.

The key to whether Apple Inc. (NASDAQ:AAPL) can remain successful over time lies in whether it can continue to turn over customers. Can it take the success of a less expensive version of one of its devices and turn that into more sales across other product lines? And can the volume of sales of a less expensive device make up for the loss in profit margin?

We won’t know the whole story yet, but we will see some clues on Jan. 23.

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