Skip to main content
Canada’s most-awarded newsroom for a reason
Enjoy unlimited digital access
$1.99
per week
for 24 weeks
Canada’s most-awarded newsroom for a reason
$1.99
per week
for 24 weeks
// //

Lex is a premium daily commentary service from the Financial Times. It helps readers make better investment decisions by highlighting key emerging risks and opportunities.

"Those products earn 50 per cent margins. We don't necessarily have those constraints. Those [margins] will not persist." So said Dennis Woodside, boss of Google's phone-making subsidiary Motorola Mobility this week. He is referring to the iPhone. He hopes to hack at those margins with the Moto X, a phone that will read users' minds (or some such). The Moto X, he intimated, will be much cheaper than the iPhone.

Customers may or may not like the Moto X. But Mr. Woodside's comments touch on key issues. The first is the sustainability of Apple's profitability. Last quarter, Apple's gross margin was 37 per cent. It was 47 per cent just a year before. Much of that is not about iPhone; the iPad mini has had a big effect. The peak margin quarter at Apple was also the quarter where the greatest portion of the company's sales came from iPhones. But the mix of newer and older iPhone models sold may be hitting margins, too (iPhone average sales prices seem to have fallen about 5 per cent over the year).

Story continues below advertisement

It is remarkable that despite a furious debate over Apple's prospects, the market has displayed Moto X-like prescience about Apple's margin problems. Even two years ago, when Apple was growing sales at a dizzying 80 per cent clip and margins were widening, the market gave the company's shares a very ordinary valuation - valuing it, in short, as if its margins (and growth) would come under pressure soon. And so they did.

The other issue is whether Google is using Motorola as a competitive tool in its fight against Apple - not in devices directly, but in Internet services. Google has always argued that it bought Motorola for its patents and, because of the many phonemakers that use the Android operating system, keeps the device business at arm's length. That may be true in a narrow sense. But how exactly is Motorola "not constrained" by the need for wide margins? It is Google that is not constrained. And why then is Motorola led by a former Google executive? The answer is because Motorola simply has to serve Google's primary interest - which lies in dominating all the internet service businesses where Apple is currently dug in, from operating systems to music.

The Globe is launching a Streetwise and ROB Insight newsletter, with content available exclusively to Globe Unlimited subscribers. Get the best of our exclusive insight and analysis delivered straight to your inbox in a daily e-mail curated by our editors. Sign up for it and other newsletters on our newsletters and alerts page .

Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies