Thursday, August 21, 2008

Apple Everywhere… Margins, Growth and Pervasive Appleness

In the 4th quarter last year Apple earned 904 million dollars on 6.2 billion in income with a Gross Margin of 33.6%. They are predicting 905 million in income on 7.8 billion in income with Gross Margins of less than 32%.  (and 30% for 2009)  Apples Margins may be coming in but they are going to earn more than a 1.00 per share in the 4th quarter this year ( July-Sept 2008 )

Apple has freaked out all the analysts by changing the “Code” they use for what their earnings predictions mean.  Apple is a large multinational company with a large range of products and  sales in 100 countries (yea I made that up) predicting how many for how much and at what cost is a crap shoot at best.  So the “Code” becomes a way for the analysts to come up with a nice safe prediction (safe because it will be close to all of the other predictions.  It is hard to get fired/sued if you have the same prediction as everyone else) that will also be safely leapfrogged by actual results.  

That said Apple has made it clear that they are changing the game in the coming quarters and Gross Margin is expected to suffer as a result.  I have written before Hereand Here about some of the forces at work narrowing margins for Apple.  Apple is not introducing A (meaning one) product that is going to narrow margins.  They have a long range plan to take over the world Grow their business. 

Apple everywhere is a strategic, systematic broadening of Apples scope while simultaneously increasing the barriers to entry for their competitors.

More and lower priced computers, more and higher priced computers more and lower priced phones, mobile computing devices …. Apple is going to meet the market where they are and spend a little less time enticing the market over to them.  How long until the retail price of an iPhone hits $50 bucks? (subsidy still FAT)

RBC today predicted sales of 3 million Macintosh computers in the quarter.  Why not.  The back to school market has shown huge growth (50% Plus over the last couple years) and Apple increased their annual back to school iPod offer to include not a $150 nano but a $300 iPod Touch.  Narrower margins…

Hard to say what comes in the short term but I suspect more computing options for less than $1,000.  Some very competitively priced portables, and more iPhone and iPod options.  The name of the game is Network externalities and Apple knows if you have any one of their products the chances of your taking a chance on another one go up exponentially (yea I made that up too but it goes up a lot) 

No comments: