February 2012
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Month February 2012

On principles of good analysis

The most challenging part is how you’re going to tell a story with just images and no words.
Words are very efficient but my belief is that to say the important things you don’t use words.
Knowing that when you do your visuals you have to be very careful with every thing that is in the frame.
Because every thing tells a story.
And sometimes you have just a small detail, but it looks too important. So you have to put it outside the frame because it tells another story.
With apologies to Michel Hazanavicius, director, The Artist

When will Android reach one billion users?

The latest data from Google shows that the Android activation rate is increasing at a relatively steady rate (i.e. acceleration is constant). The data provided so far is in the blue circles below. The green line is the interpolation and extrapolation of that data.

As the graph is projected forward we get an activation rate of one million per day by mid August of this year. If it continues then we could see 1.5 million per day by end of 2013.

The value of the OS X monopoly

In January I noted that there were more iPads sold by Apple than PCs from HP, the largest PC vendor in the fourth quarter. Including all tablets, this is the distribution of market shares by units shipped.

Note the different color palettes for Windows and non-Windows.

By the metric of tablets+PC’s Apple appears to be the leading vendor. However, if we consider only the Mac, Apple is still well behind. The historic unit volumes of the two is shown below:

iPhone sine qua non

Last week I made an attempt to measure the iPhone’s manufacturing cost given new data points from the Foxconn field trip. The post generated a great amount of new knowledge and the feedback was very valuable.

The main value to me came from stepping back and looking at the entire cost and value structure for the iPhone. Putting costs into perspective is as valuable as knowing what they are.

The following diagram shows my estimates for this cost structure for the fourth quarter given both bill of materials estimates and the other parts of the cost of goods sold and operational expenses and even ancillary sources of revenue.

Source for BOM estimate: iSupply.

There are several observations easily made from this view:

A three year view of Apple's fourth quarter

This is a summary view of Apple’s income statement for the fourth quarter of 2009, 2010 and 2011. The full size is 999×893 pixels. Click on image below for full size bitmap.


The convention used is to show revenues in the first column, cost of sales in the second followed by operating expenses, taxes and net income in the last (dark green) column.

Update on Asymconf

Registration for Asymconf opened one week ago and about 42% of the available capacity has been reserved. For those who have registered and those who are considering registration, this is a brief introduction to how the event will be conducted.

The method of presentation and participation was originally designed as a teaching method[1]. What we’re going to do is a very simplified approach of the case method first introduced in the teaching of law and later adapted to the teaching of business administration. The key difference in this method vs. the classic lecture is that there is no assumption that a right answer exists and hence that there is no greater value placed on the lecturer vis-a-vis the audience.

The event is therefore performed by three key components:

  1. The facilitator
  2. The case team
  3. The spectators

The  diagram shows the venue and rough placement of the components (to scale and with reserved seats highlighted in green).

The facilitator’s role is similar to that of a conductor of an orchestra. It’s primarily to help the individual instruments working together but not to make the music himself.

The “music” is primarily produced by the case team. This will be a group of about 30 persons arranged in a semi-circle around the facilitator. They will “debate” a case that will be published as a blog post in advance of the event. They can put forward information, agree and disagree and generally try to uncover meaning or truth.

The case team, like an orchestra, should be diverse. They are not expected to be subject matter experts but to bring their particular expertise to a common problem. In fact, subject expertise in one member can be seen as a problem since it could discourage others from also participating.

The case team will be pre-selected from the pool of spectators and will change from case to case.

The reason we ask your area of expertise during registration is so that we can create diverse case teams, not to assign you to a team that has a particular experience.

5by5 | The Critical Path #26: Zeitgeist

  • Act I: An analysis of the manufacturing cost structure for iPhones
  • Act II: The $10 billion App store economy and how to quantify value of apps per iPhone
  • Act III: Rather than seeing it as the exception, Apple, like GM and IBM may be the rule that defines an era.

This episode is sponsored by AppsFire and MailChimp.

5by5 | The Critical Path #26: Zeitgeist.

How much does it cost to manufacture an iPhone?

An iPhone generates approximately $650 in revenue for Apple. This figure has remained fairly steady over time. Using deduction from overall margins, it’s possible to estimate the gross margin on the product to be around 55%.

That means that the cost of goods sold (COGS) for the iPhone is about $293. Is that a lot? Where does that money go? What else does it tell us about how the company operates?

To find out we need to understand the cost structure of phone building.

Typically there are four main categories of costs for a phone:

  1. Bill of materials (BOM). This represents the cost of the components that go into the device. These are paid to suppliers.
  2. Transportation/warehousing. This is the cost to transport and store the product before sale. This is paid to shipping companies and warehousing.
  3. Manufacturing cost (including labor). This is paid to contract manufacturers.
  4. Warranty expense. This is paid back to customers for returned product that can no longer be sold.

We can estimate a device’s BOM through a teardown analysis

The opportunity cost of Windows Phone

The global mobile OS market shares for Q4 shows a continuing (but diminished) leading share.

At the end of last year Android’s unit share reached 51% which is down from about 57% during the third quarter. iOS reached 23%, followed by Symbian at 12%, RIM at 9%, Bada at 2.4%, Windows Phone at 1.6% and Other at 1%.

When seen on a year/year basis

App developers receive $12 for each iOS device sold

One of the more interesting numbers reported by Tim Cook during the last earnings conference call was the total payment to developers during the fourth quarter. This is the first time that Apple reported a quarterly payout to developers.

The figure was $700 million and it was mentioned in reference to the total payments to date of $4 billion. The $700 million is interesting at least because it gives an idea of what Apple obtained in total sales of Apps. As it retains 30% and pays 70% to developers then it follows that it retained $300 million and the total “gross” sales was $1 billion in Q4.[1]

The $700 million is interesting for another reason. The $1 billion in gross income can be tested against another set of data. As the countdown has already started, sometime in February Apple will report 25 billion total apps downloaded. The last such milestone was October 4th when it reported 18 billion downloads. Assuming that they will cross 25 billion by February 25th, then we can obtain an estimate for the download rate per day: about 48.6 million apps/day.

That is a figure we can plot historically: