The profit on an average Android phone is about a penny.
You what now? How? Is that wholesale - but even so...
this is fairly shocking news, but with margins like that we are just expecting manufacturers to run at a loss whilst funding from other revenue (Samsung presumably makes money from consumer electronics elsewhere)
Samsung is different than the average device: they actually have a profit margin. It is essentially Apple vs. Samsung, with the latter propped up by subsidized software from Google as part of a transparent proxy war, in a battle for the smartphone market... no one else matters.
And if it's absolute profit, then the company is still worth running - you're making enough money to pay your suppliers, your employees, and CEO's still getting their salary and bonuses. Hundreds people directly paid by the company are better off with the company still standing than closed. Thousands of customers are better off being able to exchange their currency for your product. (else they wouldn't do it.)
The only people suffering are shareholders, and you wouldn't do them any good by shuttering the company, because if you stay open there's still chance the company will make the profit in the future.
You assume there are other more profitable ventures out there. It appears, from the actions of investors and central banks, concerns that provide a return where you'd worry about the opportunity cost of not investing in them are few.
See: Europe stagnation, U.S. Fed holding interest rates down, negative interest rates, Japan, Brazil, and now China's massive slowdown.
The comment by meric above seemed to be making a claim ("If there's positive (accounting) profit, it's worth doing!") about the general case, in which case opportunity cost is an important element.
If the claim was meant to be narrowly about this particular situation, then I still think a note that opportunity cost is likely to be low is an important piece of the analysis.
I never said (and did not mean to imply, and don't think I did) that including it would change the conclusion - just that omitting it left the argument incomplete.
Comments
You what now? How? Is that wholesale - but even so...
this is fairly shocking news, but with margins like that we are just expecting manufacturers to run at a loss whilst funding from other revenue (Samsung presumably makes money from consumer electronics elsewhere)
Samsung is different than the average device: they actually have a profit margin. It is essentially Apple vs. Samsung, with the latter propped up by subsidized software from Google as part of a transparent proxy war, in a battle for the smartphone market... no one else matters.
http://www.bloomberg.com/bw/articles/2013-05-16/google-makes...
I would contend that Xiaomi could upend Samsung in China, arguably the most important market in the world.
But other than that, I 100% agree with you.
Also in India, not the biggest market, but reasonably big and growing.
Profit or marginal profit?
If the former, then expecting manufacturers to run a loss would be silly - we just said they're running a profit.
If it's marginal profit, then it depends on what their fixed cost was and how many units were produced...
And if it's absolute profit, then the company is still worth running - you're making enough money to pay your suppliers, your employees, and CEO's still getting their salary and bonuses. Hundreds people directly paid by the company are better off with the company still standing than closed. Thousands of customers are better off being able to exchange their currency for your product. (else they wouldn't do it.)
The only people suffering are shareholders, and you wouldn't do them any good by shuttering the company, because if you stay open there's still chance the company will make the profit in the future.
You're neglecting opportunity cost in your analysis. Otherwise, I more or less agree.
You assume there are other more profitable ventures out there. It appears, from the actions of investors and central banks, concerns that provide a return where you'd worry about the opportunity cost of not investing in them are few.
See: Europe stagnation, U.S. Fed holding interest rates down, negative interest rates, Japan, Brazil, and now China's massive slowdown.
You seem to have misread my comment.
The comment by meric above seemed to be making a claim ("If there's positive (accounting) profit, it's worth doing!") about the general case, in which case opportunity cost is an important element.
If the claim was meant to be narrowly about this particular situation, then I still think a note that opportunity cost is likely to be low is an important piece of the analysis.
I never said (and did not mean to imply, and don't think I did) that including it would change the conclusion - just that omitting it left the argument incomplete.