JCL Blog

Apple Gets 100% of its Profits from Channel Partners

Yesterday I proposed that some higher than expected percentage of Apple’s sales came from channel partners.  Today I propose that it is possible that 100% of Apple’s profit was actually paid by the resellers.  Here is my math based on Apple’s 2011 annual report:


Looking at iPhone sales alone – event though this under appreciates iPad sales through the carriers, and sales of other products through BestBuy and Walmart.  Apple sold 72 million iPhones in 2011 for total revenue of $47 Billion – 43% of all Apple revenue.  Last month the Wall Street Journal reported that US Carriers pay Apple an average subsidy of $400 per iPhone. 

Apple generated an average of $650 in revenue per iPhone – the channel partner is paying 61% of the purchase price of the device!  If this is true, Apple received $28 billion from its channel partners in iPhone subsidies – more than all of Apple’s profits for the year.

True, Apple can and does in some cases sell the iPhone without any subsidy.  But sales would be much less (like the WSJ reported in countries where the subsidy is not customary), and pricing would be under much more pressure.

Apple should be commended here – taking an industry where it is common to pay partners to sell for you and turn it into a situation where partners are paying more than half of the cost of product.

Can you imagine going into a car dealer and only paying 39% of the cost of the car, because the car dealer paid the rest to the manufacturer – all for a two year service contact! 

Every computer / phone / tablet maker out there wants a deal like this.  The question is, are the carriers going to keep doing it?