But if you read their actual financial reports they have never indicated in any way that their hardware is a loss leader. They disclose this information publicly since they are publicly traded. Yes, the services revenue is higher than Macs and iPads combined and is at a higher profit margin, but hardware also makes a lot of money.

Apple’s only structural advantage should be their custom silicon, but I don’t think that’s a cost advantage as much as it’s a performance and battery life advantage. Apple is still buying huge dies from TSMC and designing them custom themselves which is not cheap. Lenovo shares the cost of designing an Intel, AMD, or Qualcomm chip with dozens of OEMs. Same deal with software: I wouldn’t be surprised if macOS costs more per unit for Apple than Windows costs for Lenovo considering all the employees Apple hires directly to develop it.

Apple in theory should be paying a pretty similar amount of money to make the rest of their systems. They don’t make camera sensors, displays, keyboards, DRAM chips, or anything else themselves.

The App Store is in no way Apple’s primary source of revenue.

Apple also makes healthy margins on its hardware products.

Apple could be profitable with the App Store covering everything.

But they make more profit with high hardware margins AND the app store.

I’m pretty sure they could give phones away for free and cover it from AppStore purchases.