Apple’s profit surges at operators' expense

Despite operator frustrations at the huge markups they have to pay on iPhone devices, Apple’s momentum has not been suppressed and it has once again posted sharp year-on-year increases in revenue and profit in its latest quarterly earnings.

The firm’s revenue grew by almost 60 per cent year-on-year, from $24.7bn in 2Q11 to $39.2 in 2Q12. In addition, net profit almost doubled, rising to $11.6bn from the $6bn recorded in the same quarter a year ago.

Analysts said that Apple owes a great deal of its success to the substantial markups that it attaches to its products. David McQueen, principal analyst at Informa, said: “It costs Apple about $200 to make a single iPhone, but they’re selling to operators at around $600 to $700,”

McQueen added that operator resentment at these charges could explain a sequential drop in revenue (which was $46.3bn in 1Q12), and a fall in the firm’s share price shortly before the results were announced.

“Some operators, particularly in the US, are not happy, which is why Apple’s share price dipped.” he said.

“They are beginning to get fed up because this is having an impact on their bottom line. But on the flip side, if they don’t sell the iPhone, their competitors will and that will lead to churn. They have to either put up or shut up.”

Apple sold 88 per cent more iPhones in the quarter compared with the same period a year ago, with its sales volume reaching 35.1 million units. It also sold 11.8 million iPads – a 151 per cent unit increase on the same quarter last year.

McQueen said that the continued strong performance is due to a number of factors: it was the first full quarter in which the iPhone 4S had been on the market; the new iPad was launched; Apple made its entrance into the Chinese market and; the firm began keeping older models of the iPhone in certain markets, at reduced prices.

CEO Tim Cook was, of course, “thrilled” with the results and Apple’s CFO, Peter Oppenheimer, added that in the third quarter, the firm expects to see revenue reach around $34bn.

McQueen added that Informa Telecoms & Media fully expects the next iPhone to be LTE-enabled and for it to have a larger screen to make better use of the richer browsing experience that LTE promises.