The problem with your argument is that Apple has never settled for average market margins for any of their product lines. The iPhone is now over 5 years old and getting higher margins than ever. There is no basis to forecast a drastic drop in margins - people have been doing this for years and continue to be wrong. How long has Apple been selling computers and laptops and how are their margins on those doing? Still fantastic last time I checked. The phrase that all devices suffer from margin compression may be true but it doesn't happen in a couple of years, and there are always iterations and the odd revolutionary update that justifies maintaining margins, at least in Apple's case.
Originally Posted by PMREdmonton
Apple most certainly does have a moat. It is total product integration. There is no better experience than owning a Mac, iPhone and iPad (and AppleTV, possibly iTV?) that all work seamlessly together with iCloud and iMessage. People will say you can create an equivalent experience with Android but even if true I doubt more than a tiny fraction know how or would even bother. The appeal of Apple products is how well and how effortlessly they work to provide a meaningful user experience. This is a very real moat - billions of dollars have been put into its creation and I don't think there is a single company that has the resources to match it. Every time an Apple device is sold, or a song or app on iTunes is bought, it creates a huge incentive for that user to buy another Apple product, either in addition to or to replace their existing device. The strength of Apple's moat is highly undervalued.
Some people prefer Android because it is more "open" but this benefit to some creates huge fragmentation issues and inhibits a complete vertical integration strategy from being possible. Citing Android marketshare numbers is a silly argument. It's like saying Toyota doesn't do well because they don't sell more cars than all other vendors combined. Apple's marketshare is what it is - they sell every phone they can make and that's all that really matters. Marketshare jumps every time there's a new release because they have built up some inventory for a huge launch. This shows that demand far outweighs supply and that margins are likely to stay high for the foreseeable future.
Another thing that can throw a wrench into Android is the ongoing litigation. There is a very real chance Android loses important patent battles against Oracle or Apple and has to either strip features or pay royalties. These royalties will be passed on to the vendors forcing them to increase cost and reducing their competitiveness.