Smartphones, less smart customers

The Apple hegemony marches on and points to geopolitical risks

Apple (AAPL) became the largest and most profitable company on Earth by designing a useful and attractive smartphone when competitors like Blackberry (BBRY) were lost in their underwear thinking a personal phone had something to do with talking to your friends or sending them text message. The 2007 introduction of the iPhone spelled the demise of Blackberry and the rise of Apple despite competitive efforts by powerhouse Microsoft (MSFT) and a plethora of smartphones using the free Google-provided Android operating system and Apple has never looked back.

The success of the iPhone is a testament to the stupidity of iPhone consumers. Let me be clear at the outset, the iPhone is an elegant device that has brought joy to many. It is also designed to become obsolete quickly and to extract as much money from its user base as possible without providing any realistic benefit other than ease of use. It is the center of a physical (rather than financial) Ponzi scheme.

iPhones are high margin since they are inexpensively designed and built, a combination of using near slave labour in Foxcomm factories and run-of-the-mill components from Qualcomm, ARM, Broadcom, Samsung, etc. with an estimated manufacturing cost of about $370. Of that, $110 is the cost of the OLED display from Samsung. The detailed bill of materials discloses little of the device is anything designed or actually built by Apple.

The devices are designed such that battery power wanes over time and the device becomes purposely slower so that Apple can persuade it users to buy a “more powerful, faster, processor” that costs Apple about $27.50 to build but prompts users to cough up $800 to $1,000 or more to have the “latest and greatest” iPhone in spite of the reality that the device is virtually indistinguishable from its predecessors in terms of appearance, capability, and any useful operating metric.

Why do I call it a mechanical Ponzi scheme? Remember that in a Ponzi scheme the returns to investors come from the next round of investments of others and not from any return on the investment of Ponzi himself. Take people’s money, give them back some of the money raised from the next round of financing, call it “interest” and they think they are ahead until it runs into the law of large numbers and collapses.

The iPhone is quite similar. Take $1,000 from a consumer, use a tiny fraction of that to marginally improve some cosmetic element of the device, and encourage users to buy the next $1,000 device virtually the same as its predecessor, recycling their cash without doing any fundamental investment or research to advance anything but profits to Apple.

Think about it. Apple iPhone 14 offers a new colour, yellow. Apple iPhone 10 came in different screen sizes. Apple iPhones claimed improvements included more storage, faster processors, improved screen resolution, and trinkets like fingerprint or face recognition. But wait, apple doesn’t make the storage, designs but doesn’t make the processors, doesn’t makes the screens, and neither fingerprint or face recognition are unique or “breakthrough” innovations. Basically, every $1,099 iPhone is the last iPhone with some incidental change like a different colour. Kindergarten kids learn about colours and play with crayons.

Apple introduced its popular iPhone in 2007 and unit sales quickly grew to over 230 million in 2015, then pretty well stalled.

Unit sales stalled but profits kept rising as Apple milked its user base for more money. iPhone prices rose over time. The 2008 iPhone 3G cost $199. The 2023 iPhone 14 price ranges from $799 to well over $1,100. These phones do the same thing and I would wager that anyone who can detect the difference in “processor speed” between and iPhone 3G and an iPhone 14 is either a superman or lying. To compel users to “upgrade” Apple keeps making sure older devices won’t run the latest version of the iOS operating system, will suffer degraded capability over time, and won’t run upgraded “Applications” for which Apple takes a 30% cut in the Apple Store.

About half of American iPhone users “upgrade” to the latest iPhone every year, or every two or three years if limited by their carrier’s contract. iPhone user have become an annuity in favour of Apple, buying the next generation of iPhone which is virtually indistinguishable from their previous one. The largest and most profitable company on Earth milks its customers dry to keep the executives in limousines and the shareholders happy.

Oddly, the customers love it. They are proud of their devices. Proud? They didn’t design it, build it, program it, or do anything but shell out about $1,000 so they could be part of the “in crowd”. Thorstein Veblen called this “Conspicuous consumption” in his class book “The theory of the leisure class”.

Apple claims there are over 1 billion iPhones in use today and 1.65 billion iOS devices. Seems unlikely since total iPhone sales since 2007 are 2.3 billion and they become obsolete and incapable of running most iOS applications within a few years of sale. iPhones 7 and earlier don’t support the latest iOS version, and that includes 1.2 billion iPhones. It stretches imagination to believe all 1.1 billion iPhones sold since 2017 are still operational since reportedly 26.5 percent of iPhones fail within 2 years. Apple’s claim that there are over 2 billion users of its devices in 2023 is a longer stretch. If true, average iOS users are buying about $39 of Apple services a year since 2022 services revenue was reported at $78 billion.

Apple market capitalization is about $2.7 trillion or about $1,350 for every iOS user if you buy their claims of 2 billion users. That is wealth transferred to Apple shareholders from iOS users. There are about 1 billion vehicles on the roads across the globe. It seems that half of iOS device users can’t afford a car so I presume they don’t use Apple Carplay.

Apple claims dont’ add up. Worldwide some 3.8 billion people use Android devices and Android claims that comprises 73% share of market. If that is so, the remaining 28% is 1.4 billion people, not 2 billion. Or maybe it is the Android data that suffers from inflation.

I think the iPhone is a great device and its popularity earned and deserved. It is also a symbol of the decadence of America and a contributor to the rising wave of global socialism driven by growing income and wealth inequality and in parallel a shift to nationalism from globalism. More than any other toy every invented, smartphones including the iPhone have contributed to childhood anxiety, isolation, breakdown in family relationships, and in conjunction with Tic Toc a whole generation of kids lacking social skills and getting poor grades in school

Americans, particularly American Democrats, have become so jaded that they pretend to care about world poverty and suffering while spending more than the annual income of people living in Burundi (per capital GDP of $308) each year on a new iPhone and spending almost a trillion dollars on the world’s largest military to ensure their way of life is not threatened by anyone outside of their land base. Worse, the Democrats retain power in America by pretending CO2 can cause climate change and taking steps to suppress use of fossil fuels which are possibly the only hope impoverished countries have of building affordable electric grids to industrialize and bring billions of people out of poverty.

Apple itself, under CEO Tim Cook, has become “woke” and panders to Communist China. No one should be surprised since a substantial part of Apple’s profits and Tim Cook’s wealth is grounded on Apple sales in China and Apple’s reliance on child labor from China to assemble its devices. Apple’s dependence of China cannot be ignored by U.S. lawmakers and voters. Joe Biden’s seemingly corrupt relationship with China through his son Hunter suggests little will change until he is out of office.

75% of the world’s population today live under authoritarian regimes. That percentage is sure to rise if the powerful economies created by the capitalist system don’t alter course and help the third world enter the industrialized world by ending the climate change charade and spending more on foreign aid than they now spend on the military-industrial complex. Smartphones, including both the iPhone and Android devices, have empowered billions of people to see and understand what is happening worldwide and for many it is not a pretty picture.

In history, wide divides in income and prosperity manifested themselves in wars. Louis XIV, Tsar Nicholas and Archduke Franz Ferdinand are examples of rulers who lost their lives to an impoverished public living under the thumb of elitism. WWII resulted from subjugation of Germany impoverishing the Germans for their actions in WWI. The Russian revolution followed decades of poverty imposed by the Tsar fueling the rise of Marxism. The shift of Venezuela from constitutional democracy to Communist tyranny in one generation resulted from wide income disparities under corrupt leaders.

Global income inequality is now at extreme levels. Wars result from such disparities. This time is unlikely to be much different.