As always in hardware, established volume manufacturers are going to have a huge edge on any newcomer. Companies like Samsung and Apple have an astonishing vertical range in their manufacturing process, with their own IP cores / custom processors / custom operating systems / custom antenna design / custom case design. You can't just go out and beat all that at once, and offer the same product but cheaper.
I find the comments who say "omg it's not cheap why should I buy this" a bit condescending. You can't be any cheaper than the big companies, or else you'll have to beat them at what they're good at. If you can, you're an established player, good on you, but you most likely don't belong on HN.
As always in startup terms, you have to find your individual edge. This will always be a small gadget type of thing initially (as with most web startups), hoping to attain more traction down the line, enabling you to extend your product step by step. I really liked the Jolla phone with its I2C interface and the "second half" concept. Sweet stuff. Unique to the market, catering to the small production volumes they would be confronted with, and most importantly attracting just the right crowd of producers. If Seth Godin's Tribe Marketing rings a bell with you, then this is it.
Oneplus One, or Oppo for short, brings none of this to the table. They have a good high-volume manufacturing process, and have been selling single quantities on aliexpress for a long time. They seem good, but they had nothing unique going for them whatsoever. They used to be the archetypal me-too chinese manufacturer that tries to make a difference by striving for spec high scores (more megapixels! yay!), but neccessarily failing to deliver in other regards.
They have been looking for their edge for some time now, first with that rotatable camera gadget instead of a separate front camera, which at least got them some attention. Alas, there was a reason all other products came with two separate cameras, one being distinct usage scenarios for the two cameras and another being the rather complex case design. So at the end of the day, their design was just a stunt to demonstrate their manufacturing capabilities, and also their ability to justify large investments into injection molds. Impressive, but not attractive to me.
So their next attempt is a tacked on piece of open source software. Of course, these two companies are looking for a match here, with cyanogenmod having no clear business process but a distinctive product, and Oppo having everything else. It still feels like a cheap concept, and evidently they are centering their sales pitch around price. This always feels like a warning sign to me, indicative of a low emphasis on R&D. (Especially when compared to Samsung and Apple, who pump out a remarkable lot of innovative stuff even though they are market leaders.)
So, yeah. Personally I'll be using my second-hand Samsung Note 2 for the time being, and as soon as I feel adventurous I'll try out the Jolla. I'll be watching Oppo, but I could be more excited tbh, and I certainly don't buy into their newly-acquired startup flair. Open Source software just doesn't give you street cred like that anymore.
While vertical integration certainly helps controlling costs and giving flexibility in design, the reality is that the industry has pretty much settled on a singular design in the form of a large flat slab with the latest ARM CPU design, the year's hi-density display of choice, capacitive touchscreen, buttons and ports on the edges, and sensors at the top front and back. There's very little design left to innovate which is why Samsung has resorted to gimmicky and poorly implemented features in it's latest flagship device.
Companies like Qualcomm and Broadcom are trying to get their chips into popular hardware and as a result they offer reference platforms similar to what AMD and nVidia do in the GPU reference designs. The reference platforms are tight and it's very easy for an ODM to take a reference platform, plug in the missing pieces, slap it in a myriad of custom injection molded cases and produce a high quality device.
The primary differentiators these days are the quality of the added components (e.g. LCD, Flash, Camera modules) being attached to the reference design. Typically you pay the Apple or Samsung tax to ensure you're getting a certain level of quality.
While Google doesn't have the vertical infrastructure of Apple or Samsung, they partner with ODMs for their Nexus line using quality components and their software to make comparable devices a a cheaper price point. However since they are at the mercy of the ODM they don't have ultimate control over the price.
This company is doing something very similar to Google but they control the hardware and are relying on Cyanogen Mod's features and appeal to make up for their lack of software prowess.
Personally I think this type of relationship is very promising.
if there's one thing that all the reviews of the s5 seem to have picked up, it's that Samsung's main innovation right now is basically turning it's phone into the Homer Car of phones. They pretty much shove all the hardware bells and whistles onto their phones in a kind of chuck it at the wall and see what sticks method of r&d.
Then they add Touchwiz... oh touchwiz. I have a galaxy note II which has been a pretty decent phone, but I'm sick of the horrendous lag that touchwiz creates, it's ridiculous. +1 for Samsung innovation and r&d.
From reviewers first impressions of the oppo find 7a it's a pretty decent phone. I'm not about to jump into bed with the oneplus yet, but the most important tickboxes are there, it really depends on build quality. I really really do not think they are trying to pimp this as a cyanogenmod phone, it just happens to be a phone that uses that ROM. Is there any reason companies shouldn't be mentioning this?
First thing I do is root and then "freeze" AT&T stuff... and number of Samsung Stuffs... and crap like YPages and Flipbook.
Touchwiz seems nice as well, but tons of other launchers that are much better (Simpler is better IMO. Smart Launcher 2 Pro is my poison of choice).
My main beef with Samsung is Knox and the inevitable fight against rooting that the big boys inevitably launch. Note 3 apparently has KNOX, which will void you warranty if tripped (able to root without tripping on 4.3. 4.4 is still unrootable atm and why my OTA is disabled.).
It's the main reason why I would consider a small guy like this. Stock with no fear of bricking or voiding warranty when I do stuff with MY phone.
absolutely. I am currently considering rooting my note 2 to extend its life and get rid of all the preloaded crap.
I tend to use Apex launcher currently, but it doesn't alleviate touchwiz grodiness; amongst other thing there's that classic samsung pause when waking the phone.
I have no reason to know that this is true, but you might assume that the oneplus will be much easier to root and flash, considering it already has a rom like cyanogenmod. That would definitely make it more attractive to me too if that's the case.
It's not outrageous when you consider the marketing, distribution, R&D costs (incl. for future models) and of course, increasing wages (unless you like having people slave away 12 hours a day for $200/month). If you break even, what's the point of establishing a factory in the first place?
Doesn't Samsung spend the most out of all mobile makers on marketing? I would assume they're also paying additional costs for Google Services, patent licenses and other things, which also cut into the actual margin.
That's the part people seem to forget. Software can be expensive because they are paying for several licenses (and for the hardware too) as well us paying several devs, managers, etc. to produce the software that runs on the phone.
> typically costs an OEM approx $200-$260 to manufacturer a phone
Yeah if you can sell 40+ million a quarter. OTOH if you're sales are more like HTC's you sell your flagship phones to carriers for $400 and break even.
Your entire rant completely forgets that Apple runs, on average ~70% profit margin ($700 phone costs about $200 to make). Samsung's profit margins aren't AS high, but still are massive which help drive profit.
Your analysis pretends that Apple and Samsung are selling very custom hardware at a margin, and so one cannot beat the margin AND beat the custom hardware.
But there is a LOT of wiggle room to experiment with price when the incumbents are running 70% profit margins.
>Your entire rant completely forgets that Apple runs, on average ~70% profit margin ($700 phone costs about $200 to make).
I doubt he forgets it, because it's not true. The 70% difference between retail price and cost to stamp a device at a factory is not "profit margin", because there are further costs, before and after manufacturing, such R&D, organizational and business costs. You can bet Apple is spending more on R&D than almost anyone else, so there is likely no wiggle room at all for anyone to compete on innovation, unless they aim for some niche market.
>You can bet Apple is spending more on R&D than almost anyone else, so there is likely no wiggle room at all for anyone to compete on innovation, unless they aim for some niche market.
Actually, Apple spends comparatively less on R&D than any of its competitors. It's increased recently, but for many years - especially in the late Jobs years - people were scratching their heads at how comparatively little they spent on it.
Apple does spend comparatively little on R&D (perhaps part of that is because they don't produce 400 different models of every darn device), but their margins on iPhones are still nowhere near 70%.
I was just speaking specifically the notion that Apple's margins as a company are eaten up by R&D spend which we agree they're clearly not. (The fact that they're doing multi-billion dollar stock buybacks and issuing increasing dividends show they have more money than they know what to do with).
Although since you brought it up, I did a quick search and found that the margins on the iPhone as an individual product (vs. the company's overall margin) are speculated to be near 70% and that figure isn't just pulled out of thin air:
Because all the companies producing the several parts involved did absolutely no r&d and they got information on how to produce all those batteries, cpus, glass, radios, sensors, etc from aliens.
Every company does r&d and manage just fine with non obscene profits on each product. Apple and Samsung create artificial scarcity with lawsuits. They probably spend more on legal than r&d.
It is true. Apple has a 70% profit margin on sales that they reinvest.
Just because revenue is reinvested doesn't mean it isn't revenue or a margin.
And, seeing as Apple has >$100,000,000,000 of cash and near cash, your "reinvestment" line is a total fantasy. Apple is printing cash with a massive profit margin, and reinvesting a tiny tiny tiny fraction of that money back into their business.
>> Just because revenue is reinvested doesn't mean it isn't revenue or a margin.
Your sentence is a little confusing, because calling something revenue means it is revenue. And while related, revenue is not the same as margin.
And please note that the bill of materials for a phone is only a part of the cost of goods sold, which as mentioned by others, also includes manufacturing, assembly, marketing, r&d and other costs. Those costs are generally not considered to be "reinvestment".
I used to track AAPL when I was interning at a financial services firm last summer, and I can assure you that their profit margin is around 20%. Since AAPL is publicly traded, this information is publicly available so anyone can verify it. I'm not sure where you get the idea that their profit margin is 70%.
According to Yahoo Finance (which is a pretty good resource for non-professionals), the profit margin is currently 21%.
Unit margin is the marginal profit for selling one more unit. It doesn't include the (large) fixed costs of, for example, your personnel or your office real estate costs or R&D or legal. It's basically the bill of materials for your item plus the costs for transporting the item from where you made it/bought it to where you hand it off to the customer, any taxes on that particular item (like import duties), etc.
Unit margin is an important number to account for and work to maximize, basically because you assume that as the number of units you sell increase, your fixed costs become less and less relevant to your overall company profit. But unit margin is always higher than overall company profit margin.
EDIT: Also, obviously, unit margin varies by sku. The iPhone 5s and the iPad Air are probably the highest-margin items that Apple sells (some of their Macs may compete). Things like iPods and iPhone 5cs are likely lower-margin.
Thanks for the clarification. I had actually never heard of this concept of ``unit margin,'' but it makes sense now. It's funny that I managed to go through an entire internship at a financial services firm (which included working with valuation models of AAPL) without ever encountering this concept. I guess it's no surprise that I didn't get offered a job at the end of the internship!
>This always feels like a warning sign to me, indicative of a low emphasis on R&D.
Why is that necessarily a bad thing? Vizio, for example, has great success at selling LCD TVs, because it relies on Samsung and Sony to pave the way with R&D, and then it imitates their innovations a few years later and comes out with a lower priced product that's just as good. One+One can be the Vizio of smartphones - delivering current-gen features at low prices, and waiting for Samsung/Motorola/HTC/whoever else to pave the way (and earn profits for a few years) before coming out with a generic version that sells for much less.
Currently, the market is split between high-end very expensive devices (Galaxy S, iPhone, HTC One) which incorporate new features with every iteration, and crappy underpowered handsets which, frankly, suck. I think there's definitely room for a handset that doesn't necessarily innovate, but delivers a solid current (or even previous) generation user experience at a low price.
What about the Google Nexus line? They're neither very expensive devices nor crappy and underpowered. The entire Nexus line has proven that there's a demand for decent hardware at a non top-end price out there. It's especially important when it comes to being "allowed" to flash whatever ROM you like or unlock your bootloader, plus the pure AOSP experience means that updates aren't delayed by vendors or carriers.
For sure, Samsung are providing top-end Android devices, but the Nexus 5 is competitive with all the Galaxy S type handsets currently out there, plus the iPhone 5/5S too, and at a fraction of the price.
I agree that the Nexus line serves this niche. However, I do think there's still space for one more entrant in this market. Plus, the fact that Google is increasingly closing off bits and pieces of core Android behind Google Play services means that there's a sub-niche out there for a phone that's truly open. I'm not sure if it'll be enough to carry this device to profitability, but I'm certainly hoping that it will be. I was planning on upgrading my Nexus 4 to a Nexus 5 this year, but after looking at the specs and software on the OnePlus One, I'm probably going to hold out for one of these. The site says they're supposed to come out in Q2, so I shouldn't even have to hold out that long.
Curious though that the OnePlus One could be abbreviated as OPO. I wonder if that's an intentional dig (or nod?) at Oppo, considering that the founder is ex-Oppo.
I think you are underestimating the value of a platform you can "sort of" trust. Not saying that this is the one, but seems like a step in that direction. Personally, I'm not interested at all in getting the newest from Samsung, Apple, etc. Having to use the phone as a completely untrusted device negates most of its features.
>You can't just go out and beat all that at once, and offer the same product but cheaper.
I think they just did. LG and Samsung have been doing remarkably well off with off the shelf components and I think this entire comment undervalues the cost of distribution and marketing that gets rolled into the cost of the phone.
Hasn't it always been apple's defense that most end users don't care about specs. So I find most of this comment inconclusive at best.
I find the comments who say "omg it's not cheap why should I buy this" a bit condescending. You can't be any cheaper than the big companies, or else you'll have to beat them at what they're good at. If you can, you're an established player, good on you, but you most likely don't belong on HN.
As always in startup terms, you have to find your individual edge. This will always be a small gadget type of thing initially (as with most web startups), hoping to attain more traction down the line, enabling you to extend your product step by step. I really liked the Jolla phone with its I2C interface and the "second half" concept. Sweet stuff. Unique to the market, catering to the small production volumes they would be confronted with, and most importantly attracting just the right crowd of producers. If Seth Godin's Tribe Marketing rings a bell with you, then this is it.
Oneplus One, or Oppo for short, brings none of this to the table. They have a good high-volume manufacturing process, and have been selling single quantities on aliexpress for a long time. They seem good, but they had nothing unique going for them whatsoever. They used to be the archetypal me-too chinese manufacturer that tries to make a difference by striving for spec high scores (more megapixels! yay!), but neccessarily failing to deliver in other regards.
They have been looking for their edge for some time now, first with that rotatable camera gadget instead of a separate front camera, which at least got them some attention. Alas, there was a reason all other products came with two separate cameras, one being distinct usage scenarios for the two cameras and another being the rather complex case design. So at the end of the day, their design was just a stunt to demonstrate their manufacturing capabilities, and also their ability to justify large investments into injection molds. Impressive, but not attractive to me.
So their next attempt is a tacked on piece of open source software. Of course, these two companies are looking for a match here, with cyanogenmod having no clear business process but a distinctive product, and Oppo having everything else. It still feels like a cheap concept, and evidently they are centering their sales pitch around price. This always feels like a warning sign to me, indicative of a low emphasis on R&D. (Especially when compared to Samsung and Apple, who pump out a remarkable lot of innovative stuff even though they are market leaders.)
So, yeah. Personally I'll be using my second-hand Samsung Note 2 for the time being, and as soon as I feel adventurous I'll try out the Jolla. I'll be watching Oppo, but I could be more excited tbh, and I certainly don't buy into their newly-acquired startup flair. Open Source software just doesn't give you street cred like that anymore.