Apple’s (s aapl) mobile devices tend to have much higher profit margins than the competition, as well as also having a strong reputation in terms of build and component quality. A big part of that is due to its unique approach to using NAND flash memory, and a note to clients by Sanford Bernstein’s Toni Sacconaghi issued Friday explains why.
The note, first spotted by Barron’s, concerns why Apple would be interested in purchasing Israeli NAND flash technology firm Anobit, a purchase rumored to have been completed in December. Sacconaghi talks in broad strokes about how Apple’s NAND flash strategy contributes to its bottom line. Apple is the largest buyer of flash memory in the world, accounting for around 23 percent of total global consumption, according to Bernstein’s estimates. It uses that purchasing power to secure low prices for NAND components, which it then uses to increase its profit margin on its tiered iPhone and iPad product lines, a strategy other hardware makers haven’t yet been able to mirror with quite as much success.
Sacconaghi explains how that works, as well as how Apple makes money on just reselling its own NAND stockpiles to customers directly in the form of upgrades on base configurations:
Ironically, Apple earns nearly twice as much from reselling NAND than all the NAND suppliers combined, with NAND resale responsible for 20% of Apple’s total operating profits last quarter, at an annual run-rate of $10B+. Apple also makes money on NAND by selling it as part of its base configurations of its products. If we assume that Apple accrues the same profitability on NAND in base-configuration products as the overall margin on the products themselves, this suggests that Apple earns an additional $400M+ in operating profits attributable to NAND in base-configuration products.
Owning Anobit’s tech would help Apple by providing it with access to proprietary digital signal processing tech that it could use to further its competitive advantage in the area of NAND flash.