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Anonymous source sounds off on City of Heroes profitability, NCsoft responds
The chance to prevent City of Heroes from being shut down may have passed, but the debates about the game's profitability and the merit of that shutdown aren't going anywhere. An anonymous source has come forward reaffirming several previous data points but also elaborating on some of the details surrounding the closure, including Paragon Studios' plan to pull away from NCsoft entirely and why NCsoft wouldn't greenlight a sequel to the game. Surprisingly, NCsoft's Chief of Corporate Communications, Lincoln Davis, responded to the information, denying all claims but still shedding some light on the issue. Davis mentions repeatedly that Paragon Studios was not profitable, but at no point does he state that City of Heroes itself was not profitable. He also avoids saying that the company was unable to find a buyer for the game but simply that the company was unable to find a buyer that NCsoft thought would support the game "in a manner [players] were accustomed to for years to come." While it won't bring the game back, it certainly sheds some interesting light on the whole situation, albeit light that will likely be of cold comfort to the game's fans. [Update: We've reached out to NCsoft for a more detailed statement; we'll keep you posted when we hear more.]
Is Google selling the Nexus 7 at a loss?
Andy Rubin has already made it known that Google isn't planning to profit from the Nexus 7's hardware -- according to him, it's being sold at cost. However, a teardown conducted by TechInsights (and reported by Fudzilla) suggests that the true extent of our 'discount' may have been underplayed, because the Nexus 7's parts alone reportedly add up to around $184. That's just $15 below the current asking price for an 8GB model, before you even get to all the added costs like packaging, distribution, support, marketing and the tidy $25 Google Play voucher that comes as part of the bundle. Now, these figures may not be reliable, because who knows what deals Google and ASUS managed to negotiate, but still, it's further evidence (in case you needed it) that this tablet makes for a smart purchase.
Early estimates say new iPad cuts Apple's profit margins
These estimates are always to be taken with a grain of salt but, if UBM TechInsights is to be believed, Apple is cutting into its precious profit margins to keep the price of the iPad flat. According to the research firm, the total cost of components in the 16GB 4G model is around $310 -- not including assembly and shipping. With a final price of $629, Cupertino is pulling in about a 51 percent profit, a sizable drop from the estimated 56 percent profit margin on the similarly specced iPad 2 at launch. A large chunk of that increased cost of production is made up by the new retina display, which is estimated to cost around $70, and the LTE chipset, which UBM priced at $21. In contrast, current pricing on the panel in the iPad 2 and its 3G radio rest at around $50 and $10, respectively. We're sure Tim Cook isn't losing any sleep though, there are plenty of other ways to make up that lost dough -- like selling more iPads.
Tiny Speck and Trion Worlds make gaming headlines in 2011
Trion Worlds and Tiny Speck are two MMO studios that have made waves in 2011 with their ambitious plans and potential profit margins, according to the Wall Street Journal. The publication's article examines how these companies are running contrary to Zynga's model by producing top-tier content without trying to nickle-and-dime customers. Trion's story is seen as one of high risk and higher rewards, especially considering that it was bringing in no revenue before last March while developing three titles. "RIFT has had tremendous success -- the commercial results are just astounding -- but we've got two more big games coming... There is no joy in Mudville," said Trion's David Reid. The article notes that once a MMO breaks even, the profit margin can be as high as 70%. Trion is reportedly adding 100 new people to the team in the first part of 2012, which will put this studio in giant-sized territory: 520 employees in total. Tiny Speck may not be as large, with just 41 employees, but the team is growing due to Glitch's success. Even though the potential to make money is there, co-founder Eric Costello says that the team puts in long hours as primarily a labor of love: "The game industry is famous for running their employees into the ground, and we definitely don't want to do that, but we've also found that building a game is a lot harder than we thought it would be."
New Acer will be more like Apple, less like HP
The details behind the rift that saw Acer's CEO Gianfranco Lanci (pictured) suddenly resign yesterday are now starting to emerge. Simply put, Acer's board wants the Taiwanese company to be more like Apple and HTC, according to Bloomberg, raking in big profits on fat margins. Lanci's approach, however, was to aggressively increase volumes and use its scale to negotiate cheaper prices from suppliers in a race to steal market share from Dell and HP. According to data compiled by Bloomberg, Acer's profit margin in the last fiscal year was just 2.3 percent compared to Apple's 21.5 percent. Daunting, to say the least. With Lanci gone, JT Wang, Acer's chairman and temporary CEO, plans to put more effort into expanding its smartphone and tablet business while broadening efforts around enterprise sales. For Wang, Lanci's departure marks a break with the past, saying, "Recently the iPad [tablet computer] and other new form factors have had a very big impact on the PC market. We have to change our business strategy." While PCs will still be core to the business, Wang said "we won't be in a hurry to change to become the world number one." Unfortunately for Acer, its brand is more closely associated with low-cost laptops than with the premium devices required to significantly expand its profit margins. We'd wish 'em luck but we think Acer will be better served by an innovative CEO and focused R&D.
iPhone profits swamp competitors
Now that the flurry of earnings from the last months of 2010 have been announced by all the major mobile phone manufacturers, Horace Dediu of Asymco has summarized these figures in several stunning graphs. The market analysis company has compared the market shares, sales shares and profit shares of the top eight mobile phone manufacturers in the world. While Nokia and Samsung lead in market share and in sales share, Apple thoroughly trounced them all when it comes to profit shares. This is not the first sign that Apple leads the pack when it comes to earnings and not volume of handsets sold. An earlier report suggests Apple's revenue from the iPhone and its accessories exceeds Nokia's revenue from its mobile devices and Ovi-branded services.
Taiwanese Apple suppliers may be forced to raise prices
While the modern global economy has allowed companies in far-flung parts of the world to get into manufacturing, one of the many issues they face is exchange rate fluctuations. Electronics manufacturers in Taiwan are currently feeling the pinch as the Taiwan dollar has climbed more than other currencies in the region, jumping 2.5 percent in the past month and 7.2 percent in the past year. Each percentage point of exchange rate increase translates to 0.5 percent of profit margin according to Wintek, which produces touch panels for many Apple devices. Suppliers like Wintek rarely manage to achieve the sort of enormous profit margins that Apple does when selling to the consumer, and losing 3 percent off the top is tough to swallow. As a result, Taiwan-based companies may have to look at increasing the prices charged to Apple and other customers. Apple's premium pricing to end customers means that it has some flexibility to absorb price increases from suppliers in the short term. That will, of course, hurt its profits, which it won't tolerate for very long. Given the competitive marketplace, Apple will be reluctant to increase prices, but if the exchange rate situation doesn't improve soon, we'll probably see some decontenting or a slow-down in the spec increases. Instead of seeing next-gen MacBooks and iPhones getting more memory or better cameras, they will probably hold steady. [Via Electronista]
iPhone gross profit margins nearly 60%
Bernstein Research's Toni Sacconaghi issued a 13-page report last week in which he estimated that the iPhone's gross profit margins were an astounding 57.8%. Those margins tower above Apple's competitors with RIM estimated to have 43% profit margins, Nokia 33%, Motorola 32%, and HTC 31.7%. Sacconaghi believes that the iPhone's high gross margins could change Apple's business model as the iPhone's share of Apple's overall revenue stream grows from 30% in FY09 to an estimated 45% to 50% in FY11. Philip Elmer-DeWitt over at Apple 2.0 notes that while the Street generally assumes Apple's profit margins will decline over the next few years, Sacconaghi believes they will increase due to a few key points: iPhone prices are actually increasing. In Q3 2009, the average wholesale price was $588. In Q1 2010 it's risen to $638. Buyers are still more than eager for the iPhone. There is no sign of price resistance from either customers or carriers. Mobile partners are still lining up to get the iPhone with Apple adding 15 new ones over the past 4 months. Despite his Rosy outlook, Sacconaghi is reducing his iPhone shipment estimates by 1.3 million units in FQ4 10 and 5.5 million units in fiscal year 2011 under the assumption that there won't be an iPhone for Verizon before mid 2011. He also expects T-Mobile will get the iPhone before Verizon does. As for the iPad, Sacconaghi estimates its gross profit margins to be between 30 to 32%, not the 50% suggested by iSuppli. Sacconaghi rates AAPL as "Outperform" and has a price target of $250. In his report he states, "We believe that on a cash flow basis the stock is very attractively valued and that the stock is the most attractive secular name in our coverage universe."
Businessweek chimes in on Activision Blizzard
Now that the dust is settling from the Activision/Vivendi merger announced over the weekend, the numbers fans are starting to chime in on the epic moneymaking potential of this merger. Sure, we knew Blizzard was making a great deal of money from World of Warcraft -- anyone with half a clue who paid the recurring $15 a month bill for the last three years knew that. But to many it came as a shock that in regards to 2007, WoW is expected to produce $520 million of pure unadulterated profit -- yes, that's after paying the bills. We suspect that even Donald Trump must be drooling at those numbers right about now. If you're curious about just how this merger changes the financial landscape, Matt Vella from Businessweek has done a fairly good job with an overview of the potential impact. His story covers some familiar ground, but also compares EA against the proposed Activision Blizzard corporate monster. The only thing we'd have to take issue with is the claim that Sony (SOE) and NCsoft are "scrambling to get a piece" of the MMO market. The last time we checked, SOE have had their hands in the MMO pie for almost as long as there's been an MMO market. There's also the point that NCsoft has highly successful titles in the Eastern MMO market with Lineage/Lineage II -- and where's the love for CoX, GW, TR, etc? Do they want a larger piece or the market? Sure. But with name recognition in the industry already, they're well ahead of many others just jumping into the game. Nonetheless, it's an interesting read if you are curious how the business end of all this gameplaying is expected to shape up. [Thanks, Matt]
